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 Project Management in a Complex World

manage projects well.

Organization of the Book

This text addresses the challenges posed by various levels of project complexity by
introducing an approach to profiling projects and discussing the implications to
project

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management. The text provides an overview of project management and uses the
industry

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 Online Supplements

The concepts taught in the textbook are reinforced using traditional questions,
essay
assignments, and discussion questions.

Examples of these activities are as follows:

 Step-by-step instructions on how to use software to accomplish

project
management tasks:
o Using collapsible outlines in MS Word 2003 and 2007 and MS
Word for Mac
2008 to create a work breakdown structure
o ,
durations, and a Gantt chart
o Using Google Docs and Office Live to prepare project scope
statements and
work breakdown structure documents in an online shared work
environment
where team members each do a portion of the task
o Using OpenProject (a free, open source project management
software that is
similar to MS Project) or Microsoft Project trial software to create
an activity list
with durations and precedents to create a PERT (program evaluation
and review
technique) chart and identify the critical path and project float
o Using Project On Demand to work with a team to create a
similar activity list
in an online environment where each team member is responsible for a
portion of
the activities
 Project management resources located online—URLs of online resources,
such as
the following:
o Project management definitions
o Pronunciations of key terms
o Project management forms used by government agencies

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 Screen captures to record visits to sites for grading purposes
 A bookmark folder for project management sites that can be added to,
to develop a
resource library of Web addresses
 Exploration and reporting
o Instructions on how to use advanced search features in Google
to limit
results using keywords, phrases, recent pages, domain names, and
exclusion terms
o Searches for information on issues and events in project
management that
can be reported upon in class or in online discussions
 Team activities
o Determining international time zones and dates
o Dialing international calls
o Using Internet-based voice and video conferencing software

Other Online Activities


 Audio interviews with project management experts in which they relate
insights to
managing real projects
 Case studies depicting examples of the concepts in the text that are
drawn primarily
from the authors’ consulting experience and supplemented with links to sites
online where
current project cases are described

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 Chapter 1
Introduction to Project Management

manager.

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1.1 Project Management Defined

LEARNING OBJECTIVES
1. Identify the Project Management Institute’s definition of project
management.
2. Analyze and evaluate the role of client expectations in a project.
3. Define project scope.

“Project management is the application of knowledge, skills, tools, and techniques

to

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Jack Meredith and Samuel Mantel [2] discussed project management in terms of
producing

scope development and management.

Client expectations encompass an emotional component that includes many client
desires
that are not easily captured within a specification document. Although closely
correlated
with project specifications, client expectations are driven by different needs. It
is possible
for a project team to exceed every project specification and end up with an
unsatisfied
client.

Highway Project
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accustomed to complex projects with a large number of unknown issues that increase
the
final cost of the project, a 20 percent overrun in cost was not unusual. Even
though the
project was 20 percent over budget, the client was happy. Client satisfaction is
often tied to

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expectations about project performance. Identifying and managing those expectations
is a
primary responsibility of the project manager.

KEY TAKEAWAYS
 According to PMI, project management is the application of knowledge,
skills,
tools, and techniques to meet project requirements.
 The role of the client is controversial. Some clients include meeting or
exceeding
their expectations as part of project management.
 Project scope is a document that defines the work required to complete the
project successfully.
EXERCISES
1. According to PMI, project management is the application of knowledge,
________,
tools, and techniques to meet project requirements.
2. According to Meredith and Mantel, a project should ____ __ ______ (three
words)
the expectations of the client.
3. If someone had asked you to define project management before you read this
section, how would you have defined it? How did your definition differ from
the PMI
definition?
4. What aspect of project management was omitted from the PMI definition that
is
included in the definition proposed by Meredith and Mantel? If you were on the
PMI
decision-making body, would you vote to include it? Explain your choice.
5. What is meant by the statement “The response of the client to the events of
the
project may be counterintuitive”?

Client Expectations

Compare and contrast the highway and biotech examples previously described.
Suggest an approach that might have prevented client disappointment in the
highway
project. Include the following in your answer:

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 What are the differences between the two projects? Provide a bulleted list.
 Identify the single most important difference between the two projects that
affected client satisfaction.
 Suggest an approach to managing client expectations in the highway project
that
might have resulted in meeting or exceeding expectations rather than
disappointment.

[1] Project Management Institute, Inc., A Guide to the Project Management Body of

Knowledge (PMBOK Guide), 4th ed. (Newtown Square, PA: Project Management Institute,
Inc., 2008), 6.
[2] Jack R. Meredith and Samuel J. Mantel, Jr., Project Management: A Managerial
Approach (Hoboken, NJ: Wiley, 2006), 8.
[3] Russell W. Darnall, The World’s Greatest Project (Newtown Square, PA: Project
Management Institute, Inc., 1996), 48–54.
[4] Russell W. Darnall, The World’s Greatest Project (Newtown Square, PA: Project
Management Institute, Inc., 1996), 48–54.

1.2 Project Defined

LEARNING OBJECTIVES
1. Describe two defining characteristics of a project.
2. Organize projects within projects.

The Project Management Institute (PMI) defines a project by its two key
characteristics. All
projects are temporary and undertaken to create a product, service, or result that
is
unique. [1]These two simple concepts create a work environment that mandates
different

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management approach from that used by an operations manager, whose work is oriented
toward continuous improvement of existing processes over longer periods of time.

A project manager needs a different set of skills to both define and successfully
execute
temporary projects. Because projects are temporary, they have a defined beginning
and
end. Project managers must manage start-up activities and project closeout
activities. The
processes for developing teams, organizing work, and establishing priorities
require a
different set of knowledge and skills because members of the project management
team
recognize that it is temporary. They seldom report directly to the project manager
and the
effect of success or failure of the project might not affect their reputations or
careers the
same way that the success or failure of one of their other job responsibilities
would.

The second characteristic of a project, the delivery of a unique product, service,

or result,
also changes the management approach to the work. A project manager must take time
to
understand the deliverables of a project, develop a plan for producing the
deliverables in
the time available, and then execute that plan.
Projects are also defined within the context of larger projects as the following
example
illustrates.

National Energy Plan

The National Energy Technology Laboratory laid out a plan for a national energy
policy
that had a clear and identifiable outcome—providing reliable, affordable, and
environmentally sound energy. [2] The details of this plan will be revised and
updated, but
the general goals are likely to remain unchanged. To accomplish these goals, the
project
requires the development of new technologies, complex scheduling and cost control,
coordination of a large number of subcontractors, and skillful stakeholder
management.
Development of each of the major components became a project for the winning
contractors within the larger project of providing reliable, affordable, and
environmentally

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 sound energy. Contractors for cleaner use of fossil fuels, conservation
efforts, and
development of renewable energy sources would manage major projects. Each
project has
to develop new technologies, manage a large number of subcontractors, and
manage the
stakeholders at the Department of Energy.
Each subcontractor or work unit becomes a project for that organization. The
project is
defined by the scope of work. In the energy policy, the scope of work included
all activities
associated with reducing use of fossil fuels and reliance on imported energy.
Using our
definition that a project is a temporary endeavor that creates a unique product
or service,
implementation of the energy policy would be a project that consists of other
projects, such
as development of the following:
 Wind power
 Solar power
 Electricity transmission
 Electricity storage
 New nuclear reactor design and installation
 Other renewable energy sources
 Biofuels
 Electric vehicles
 Nonpolluting use of coal and natural gas
 Environmental protection

KEY TAKEAWAYS
 All projects are temporary and undertaken to create a product, service,
or result.
 Projects can contain smaller projects.

EXERCISES
1. The project scope is the _____ required to complete the project
successfully.
2. According to PMI, all projects are ________ and undertaken to create a
product or
service that is unique.

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3. Projects can contain ___________ projects.
4. What are two defining characteristics of a project that distinguish it
from a
process?
5. If you were planning to move from your current apartment or home to
another
location, would this qualify as a project? Explain your answer.
Projects within Projects
Choose a large public works project such as the construction of a new high
school.
Identify at least five phases to this project that could be treated as
projects within a
project. Specifically state how each project meets the definition of a
project, and
describe the product, service, or result of each project and why it is
temporary.

[1] Project Management Institute, Inc., A Guide to the Project Management Body of

Knowledge
(PMBOK Guide), 4th ed. (Newtown Square, PA: Project Management Institute, Inc.,
2008), 5.
[2] National Energy Technology Laboratory, “Reliable, Affordable, and
Environmentally Sound
Energy for America’s Future,” The Energy Lab,
2001, http://www.netl.doe.gov/publications/press/2001/nep/nep.html(accessed June
18,
2009).

1.3 Project Context

LEARNING OBJECTIVES
1. Identify the effect of organization type on time horizons.
2. Compare project management and operations management.
3. Describe the organizational options for managing projects.

The project is affected by the type of organization in which the project is

conducted and
how the organization is organized to manage projects.

Organizational Priorities
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Organizations fulfill a societal role to meet economic, religious, and governance
functions.
Local factories, churches, and hospitals are all organizations that provide some
social or
community need. Factories create wealth and jobs, churches provide spiritual and
common
social needs for communities, and government organizations provide regulations and
services that allow for an orderly society. These organizations have different
views of time
and each organization develops an operational approach to accomplishing the purpose
of
the organization over that time horizon. For example, a religious group might begin
construction of a cathedral that would take several lifetimes to complete,
government
performance is reviewed at election time, and a publicly owned company must justify
its
use of money each year in the annual report.
Organizations operate to effectively and efficiently produce the product or service
that
achieves the organization’s purpose and goals as defined by the key stakeholders—
those
who have a share or interest. An organization seeks to develop stable and
predictable work
processes and then improve those work processes over time through increased
quality,
reduced costs, and shorter delivery times. Total quality management, lean
manufacturing,
and several other management philosophies and methodologies have focused on
providing
the tools and processes for increasing the effectiveness and efficiency of the
organization.
Historically, these methodologies focused on creating incremental and continuous
improvement in work processes. More recently, organizations are increasingly
focused
on step changes that take advantage of new technologies to create a significant
improvement in the effectiveness or efficiency of the organization.
Often, these initiatives to increase organizational effectiveness or efficiency are
identified
as projects. Economic organizations will initiate a project to produce a new
product, to
introduce or revamp work processes to significantly reduce product costs, or to
merge with
other organizations to reduce competition or lower costs and generate additional
profits. A
social organization, such as a hospital, may build a new wing, introduce a new
service, or
design new work processes to reduce costs. A government organization may introduce
a

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new software program that handles public records more efficiently, build a new road
to
reduce congestion, or combine departments to reduce costs.
Each of the initiatives meets our definition of a project. Each is a temporary
endeavor and
produces a unique product or service. Managing these projects effectively entails
applying
project management knowledge, skills, and tools.

Operations Management versus Project

Management

One way to improve understanding of project management is to contrast project

management with operations management. Whether in an economic, socioreligious, or
government organization, managers are charged with effectively and efficiently
achieving
the purpose of the organization. Typically, a manager of an economic organization
focuses
on maximizing profits and stockholder value. Leaders with socioreligious
organizations
focus on effective and efficient delivery of a service to a community or
constituency, and
governmental managers are focused on meeting goals established by governmental
leaders.
Operations managers focus on the work processes of the operation. More effective
work
processes will produce a better product or service, and a more efficient work
process will
reduce costs. Operations managers analyze work processes and explore opportunities
to
make improvements. Total quality management, continuous process improvement, lean
manufacturing, and other aspects of the quality movement provide tools and
techniques for
examining organizational culture and work processes to create a more effective and
efficient organization. Operations managers are process focused, oriented toward
capturing and standardizing improvement to work processes and creating an
organizational culture focused on the long-term goals of the organization.

Project managers focus on the goals of the project. Project success is connected to
achieving the project goals within the project timeline. Project managers are goal
directed

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and time sensitive. Project managers apply project management tools and techniques
to
clearly define the project goals, develop an execution plan to meet those goals,
and meet
the milestones and end date of the project.
An operations manager may invest $10,000 to improve a work process that saves
$3,000 a
year. Over a five-year period, the operations manager improved the profitability of
the
operations by $5,000 and will continue to save $3,000 every year. The project
manager of a
one-year project could not generate the savings to justify this kind of process
improvement
and would not invest resources to explore this type of savings.
An operations manager creates a culture to focus on the long-term health of the
organization. Operations managers build teams over time that focus on standardizing
and
improving work processes, that search for and nurture team members who will “fit
in,” and
that contribute to both the effectiveness of the team and the team culture. Project
managers create a team that is goal focused and energized around the success of the
project. Project team members know that the project assignment is temporary because
the
project, by definition, is temporary. Project team members are often members of
organizational teams that have a larger potential to affect long-term advancement
potential. Project managers create clear goals and clear expectations for team
members
and tie project success to the overall success of the organization. Operations
managers are
long-term focused and process oriented. Project managers are goal directed and
milestone
oriented.

Organizing to Manage Projects

Because project management is different from operations management, projects are

handled best by people who are trained in project management. This expertise can be
obtained by hiring an outside consulting firm that specializes in project
management or by
developing an in-house group.
Some organizations are designed to execute projects. Often entities contract with
engineering and construction companies to design and build their facilities or hire
software

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companies to develop a software solution. The major work processes within these
organizations are designed to support the acquisition and execution of projects.
Functional
departments such as estimating, scheduling, and procurement create and maintain
core
competencies designed to support projects. The ability of these types of
organizations to
successfully manage projects becomes a competitive advantage in the marketplace.
Organizations designed to produce products or services also use projects. Major
activities
outside the normal work of the organization’s department or functional units or
major
activities that cross functional boundaries become a project (a temporary task
undertaken
to create a product or service that is unique). As economic pressures increase the
speed in
which organizations must change and adapt to new environmental conditions, leaders
are
increasingly chartering projects to enable the organization to more quickly adapt.
The
application of a project management approach increases the likelihood of success as
organizations charter a project to facilitate organizational change, to increase
the
development and introduction of new products or support the merger or divesture of
organizational units.
Project management offices (PMOs) have emerged to facilitate development of
organizational knowledge, skills, and tools to internally charter and manage
projects within
the organization. The PMO varies in structure and responsibility depending on the
project
management approach of the parent organization. On one end of the spectrum, the PMO
has complete responsibility for projects within an organization from the criteria
and
selection of appropriate projects to accountability for project performance. In
organizations that make a large investment in the PMO, a large number of new
product or
process improvement projects are submitted, and the project office develops a
portfolio of
projects to manage over a given period that maximizes the use of organizational
resources
and provides the greatest return to the organization.

PMOs can provide various functions for an organization. Some possible functions
include
the following:

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 Project management. Some organizations maintain the project manager
within the
PMO, assign project managers from other departments, procure contract project
managers,
or practice a combination of all three.
 Center of excellence. The project office can maintain the
organization’s project
management policies and procedures, maintain a historical database, maintain
best
practices, and provide training and specialized expertise when needed.
 Portfolio management. The project office actually supervises the
project managers
and monitors project performance. Portfolio management also includes
prioritizing
projects on the basis of value to the organization and maintains an inventory
of projects.
Portfolio management balances the number and type of projects to create the
greatest
return from the entire portfolio of projects.
 Functional support. The project office maintains project management
expertise to
support the project. Estimating, project scheduling, and project cost analysis
are examples
of functional support.

KEY TAKEAWAYS
 The purpose of an organization can affect its view of the time allowed
for projects.
 In an organization, project management can be used to make step changes
to take
advantage of new technologies or make significant improvements in
effectiveness or
efficiency.
 Operations managers are long-term focused and process oriented. Project
managers are goal directed and milestone oriented.
 Projects can be handled by outside contractors or by an internal group
in a PMO.

EXERCISES
1. The type of organization can influence the ____ frame allowed for
projects.
2. Operations managers are focused on __________, while project managers
are
focused on the goals of the project.

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3. If projects are routinely handled internally, the group that manages the
projects
might be called the ______ ______ _____ (three words).
4. A friend of yours has a forty-five-minute commute to work. She decides to
spend
some time evaluating the different options she has for routes and possible
carpooling
to reduce the cost or time it takes to get to work. Is this task an example of
something
that uses the skills of an operations manager, or does it need the additional
skills of a
project manager? Explain your answer and refer to the definitions provided.
5. Business managers focus on improving efficiency and effectiveness, but
sometimes
they use a project management approach to make significant changes. What often
prompts them to use the project management approach? What would be an
example?
Operations versus Project Management
The manager of a sales department must meet annual sales goals, manage
personnel
in the department, and develop and deliver product training for clients. How
is this
type of operations management different from project management? Address each
of
the following issues in your answer:
 How is the relationship between the operations manager and the sales staff
different from the relationship between a project manager and the project team
members?
 Which of the duties described above is most like project management and
might
be contracted to an outside firm?
 What is the biggest difference between project management and the sales
manager’s job?

1.4 Key Skills of the Project Manager

LEARNING OBJECTIVES
1. Identify necessary operational leadership skills.

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 2. Identify additional leadership skills required of a project manager.

Every project is unique, and most projects will encounter unexpected technical
challenges.
Each project management team is a group of individuals who need motivation and
coordination. Planning is vital, but the ability to adapt to changes and work
with people to
overcome challenges is just as necessary. A project manager must master the
skills that are
necessary to be successful in this environment.

Operational Management Skills

Often the difference between the project that succeeds and the project that
fails is the
leadership of the project manager. The leadership skills needed by the
successful project
manager include all the skills needed by operations managers of organizations.
These skills
include:
 Good communication
 Team building
 Planning
 Expediting
 Motivating
 Political sensitivity

Project Management Skills

Because project managers generally operate in a project environment that is

more time
sensitive and goal driven, the successful project manager requires additional
knowledge,
skills, and abilities.

Albert Einsiedel [1] discussed leader-sensitive projects and defined five

characteristics of an
effective project leader. These characteristics were chosen based on some
assumptions

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 about projects. These characteristics include the project environment, which is
often a
matrix organization that results in role ambiguity, role conflict, and role
erosion. The
project environment is often a fluid environment where decisions are made with
little
information. In this environment, the five characteristics of an effective
project leader
include the following:

 Credibility
 Creativity as a problem solver
 Tolerance for ambiguity
 Flexibility in management style
 Effectiveness in communicating
Hans Thamhain [2] researched the training of project managers and, based on the
finding,
categorized project management into interpersonal, technical, and
administrative skills:
 Interpersonal skills. These skills include providing direction,
communicating,
assisting with problem solving, and dealing effectively with people without
having
authority.
 Technical expertise. Technical knowledge gives the project manager the
creditability
to provide leadership on a technically based project, the ability to understand
important
aspects of the project, and the ability to communicate in the language of the
technicians.
 Administrative skills. These skills include planning, organizing, and
controlling the
work.
Thamhain’s work provides a taxonomy for better understanding the skills needed
by
project managers.

Traditionally, the project manager has been trained in skills such as

developing and
managing the project scope, estimating, scheduling, decision making, and team
building.
Although the level of skills needed by the project manager depends largely on
the project
profile, increasingly the people skills of the project manager are becoming
more important.
The skills to build a high-performing team, manage client expectations, and
develop a clear

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vision of project success are the type of skills needed by project managers on more
complex projects. “To say Joe is a good project manager except he lacks good people
skills
is like saying he’s a good electrical engineer but doesn’t really understand
electricity.” [3]

KEY TAKEAWAYS
 Project managers need the same skills as an operations manager, such as
good
communications, team building, planning, expediting, and political
sensitivity.
 Project managers need additional skills in establishing credibility,
creative problem
solving, tolerance for ambiguity, flexible management, and very good people
skills.

EXERCISES
1. Project managers need the same skills as an operations manager, including
communications, team building, planning, expediting, and _______ sensitivity.
2. In addition to the skills needed by an operations manager, a project
manager
needs to establish credibility, solve problems creatively, have a tolerance
for
____________, be flexible, and have good people skills.

Personal Leadership Inventory

Rate your personal project management skills using the following scale:

 S Strong
 M Moderate
 I Improvement needed

Operational management skills:

1. Good communication

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2. Team building
3. Planning
4. Expediting
5. Motivating others
6. Sensitive to the politics of a situation
Additional project management skills:
7. Establish credibility with others
8. Find creative solutions to problems
9. Tolerate ambiguity
10. Use a flexible management style—adapt your management style to changing
situations

[1] Albert A. Einsiedel, “Profile of Effective Project Managers,” Project

Management Journal 18
(1987): 5.
[2] Hans J. Thamhain, “Developing Project Management Skills,” Project Management
Journal 22
(1991): 3.
[3] Russell W. Darnall, “The Emerging Role of the Project Manager,” PMI
Journal (1997): 64.

1.5 Introduction to the Project

Management Knowledge Areas

LEARNING OBJECTIVES
1. Identify the tasks performed in a project start-up.
2. Describe the areas of project management knowledge as defined by the
Project
Management Institute.
Projects are divided into components, and a project manager must be knowledgeable
in
each area. Each of these areas of knowledge will be explored in more depth in
subsequent
chapters.

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Project Start-Up and Integration
The start-up of a project is similar to the start-up of a new organization. The
project leader
develops the project infrastructure used to design and execute the project. The
project
management team must develop alignment among the major stakeholders—those who
have a share or interest—on the project during the early phases or definition
phases of the
project. The project manager will conduct one or more kickoff meetings or alignment
sessions to bring the various parties of the project together and begin the project
team
building required to operate efficiently during the project.

During project start-up, the project management team refines the scope of work and
develops a preliminary schedule and conceptual budget. The project team builds a
plan for
executing the project based on the project profile. The plan for developing and
tracking the
detailed schedule, the procurement plan, and the plan for building the budget and
estimating and tracking costs are developed during the start-up. The plans for
information
technology, communication, and tracking client satisfaction are all developed
during the
start-up phase of the project.

Flowcharts, diagrams, and responsibility matrices are tools to capture the work
processes
associated with executing the project plan. The first draft of the project
procedures manual
captures the historic and intuitional knowledge that team members bring to the
project.
The development and review of these procedures and work processes contribute to the
development of the organizational structure of the project.

This is typically an exciting time on a project where all things are possible. The
project
management team is working many hours developing the initial plan, staffing the
project,
and building relationships with the client. The project manager sets the tone of
the project
and sets expectations for each of the project team members. The project start-up
phase on

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 complex projects can be chaotic, and until plans are developed, the project
manager
becomes the source of information and direction. The project manager creates an
environment that encourages team members to fully engage in the project and
encourages
innovative approaches to developing the project plan.

Project Scope

The project scope is a document that defines the parameters—factors that define

a system
and determine its behavior—of the project, what work is done within the
boundaries of the
project, and the work that is outside the project boundaries.
The scope of work (SOW) is
typically a written document that defines what work will be accomplished by the
end of the
project—the deliverables of the project. The project scope defines what will be
done, and
theproject execution plan defines how the work will be accomplished.

No template works for all projects. Some projects have a very detailed scope of
work, and
some have a short summary document. The quality of the scope is measured by the
ability
of the project manager and project stakeholders to develop and maintain a
common
understanding of what products or services the project will deliver. The size
and detail of
the project scope is related to the complexity profile of the project. A more
complex project
often requires a more detailed and comprehensive scope document.

According to the Project Management Institute, [1] the scope statement should

include the
following:

 Description of the scope

 Product acceptance criteria
 Project deliverables
 Project exclusions
 Project constraints

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 Project assumptions

The scope document is the basis for agreement by all parties. A clear project
scope
document is also critical to managing change on a project. Since the project
scope reflects
what work will be accomplished on the project, any change in expectations that
is not
captured and documented creates the opportunity for confusion. One of the most
common
trends on projects is the incremental expansion in the project scope. This
trend is
labeled scope creep. Scope creep threatens the success of a project because the
small
increases in scope require additional resources that were not in the plan.
Increasing the
scope of the project is a common occurrence, and adjustments are made to the
project
budget and schedule to account for these changes. Scope creep occurs when these
changes
are not recognized or not managed. The ability of a project manager to identify
potential
changes is often related to the quality of the scope documents.

Events do occur that require the scope of the project to change. Changes in the
marketplace
may require change in a product design or the timing of the product delivery.
Changes in
the client’s management team or the financial health of the client may also
result in
changes in the project scope. Changes in the project schedule, budget, or
product quality
will have an effect on the project plan. Generally, the later in the project
the change occurs,
the greater the increase to the project costs. Establishing a change management
system for
the project that captures changes to the project scope and assures that these
changes are
authorized by the appropriate level of management in the client’s organization
is the
responsibility of the project manager. The project manager also analyzes the
cost and
schedule impact of these changes and adjusts the project plan to reflect the
changes
authorized by the client. Changes to the scope can cause costs to increase or
decrease.

Project Schedule and Time Management

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The definition of project success often includes completing the project on time.
The
development and management of a project schedule that will complete the project on
time
is a primary responsibility of the project manager, and completing the project on
time
requires the development of a realistic plan and the effective management of the
plan. On
smaller projects, project managers may lead the development of the project plan and
build
a schedule to meet that plan. On larger and more complex projects, a project
controls team
that focuses on both costs and schedule planning and controlling functions will
assist the
project management team in developing the plan and tracking progress against the
plan.

To develop the project schedule, the project team does an analysis of the project
scope,
contract, and other information that helps the team define the project
deliverables. Based
on this information, the project team develops amilestone schedule. The milestone
schedule establishes key dates throughout the life of a project that must be met
for the
project to finish on time. The key dates are often established to meet contractual
obligations or established intervals that will reflect appropriate progress for the
project.
For less complex projects, a milestone schedule may be sufficient for tracking the
progress
of the project. For more complex projects, a more detailed schedule is required.

To develop a more detailed schedule, the project team first develops

awork breakdown structure (WBS)—a description of tasks arranged in layers of
detail.
Although the project scope is the primary document for developing the WBS, the WBS
incorporates all project deliverables and reflects any documents or information
that
clarifies the project deliverables. From the WBS, a project plan is developed. The
project
plan lists the activities that are needed to accomplish the work identified in the
WBS. The
more detailed the WBS, the more activities that are identified to accomplish the
work.

After the project team identifies the activities, the team then sequences the
activities
according to the order in which the activities are to be accomplished. An outcome
from the
work process is theproject logic diagram. The logic diagram represents the logical

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sequence of the activities needed to complete the project. The next step in the
planning
process is to develop an estimation of the time it will take to accomplish each
activity or the
activity duration. Some activities must be done sequentially, and some activities
can be
done concurrently. The planning process creates a project schedule by scheduling
activities
in a way that effectively and efficiently uses project resources and completes the
project in
the shortest time.

On larger projects, several paths are created that represent a sequence of

activities from
the beginning to the end of the project. The longest path to the completion of the
project is
thecritical path. If the critical path takes less time than is allowed by the
client to complete
the project, the project has a positive total float or project slack. If the
client’s project
completion date precedes the calculated critical path end date, the project has
negative
float. Understanding and managing activities on the critical path is an important
project
management skill.

To successfully manage a project, the project manager must also know how to
accelerate a
schedule to compensate for unanticipated events that delay critical activities.
Compressing
—crashing—the schedule is a term used to describe the techniques used to shorten
the
project schedule. During the life of the project, scheduling conflicts often occur,
and the
project manager is responsible for reducing these conflicts while maintaining
project
quality and meeting cost goals.

Project Costs
The definition of project success often includes completing the project within
budget.
Developing and controlling a project budget that will accomplish the project
objectives is a
critical project management skill. Although clients expect the project to be
executed
efficiently, cost pressures vary on projects. On some projects, the project
completion or end
date is the largest contributor to the project complexity. The development of a new
drug to

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address a critical health issue, the production of a new product that will generate
critical
cash flow for a company, and the competitive advantage for a company to be first in
the
marketplace with a new technology are examples of projects with schedule pressures
that
override project costs.

The accuracy of the project budget is related to the amount of information known by
the
project team. In the early stages of the project, the amount of information needed
to
develop a detailed budget is often missing. To address the lack of information, the
project
team develops different levels of project budget estimates.
The conceptual estimate (or
“ballpark estimate”) is developed with the least amount of knowledge. The major
input into
the conceptual estimate is expert knowledge or past experience. A project manager
who
has executed a similar project in the past can use those costs to estimate the
costs of the
current project.

When more information is known, the project team can develop

arough order of magnitude (ROM) estimate. Additional information such as the
approximate square feet of a building, the production capacity of a plant, and the
approximate number of hours needed to develop a software program can provide a
basis
for providing a ROM estimate. After a project design is more complete, a project
detailed
estimate can be developed. When the project team knows the number of rooms, the
type of
materials, and the building location of a home, the project team can provide a
detailed
estimate. A detailed estimate is not a bid.

The cost of the project is tracked relative to the progress of the work and the
estimate for
accomplishing that work. Based on the cost estimate, the cost of the work performed
is
compared against the cost budgeted for that work. If the cost is significantly
higher or
lower, the project team explores reasons for the difference between expected costs
and
actual costs.

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Project costs may deviate from the budget because the prices in the marketplace
were
different from what was expected. For example, the estimated costs for lumber on a
housing project may be higher than budgeted or the hourly cost for labor may be
lower
than budgeted. Project costs may also deviate based on project performance. For
example,
the project team estimated that the steel design for a bridge over the Hudson River
would
take 800 labor hours, but 846 hours were actually expended.
The project team captures the deviation between costs budgeted for work and the
actual
cost for work, revises the estimate as needed, and takes corrective action if the
deviation
appears to reflect a trend.
The project manager is responsible for assuring that the project team develops cost
estimates based on the best information available and revises those estimates as
new or
better information becomes available. The project manager is also responsible for
tracking
costs against the budget and conducting an analysis when project costs deviate
significantly from the project estimate. The project manager then takes appropriate
corrective action to assure that project performance matches the revised project
plan.

Project Quality

Project quality focuses on the end product or service deliverables that reflect the
purpose
of the project. The project manager is responsible for developing a project
execution
approach that provides for a clear understanding of the expected project
deliverables and
the quality specifications. The project manager of a housing construction project
not only
needs to understand which rooms in the house will be carpeted but also what grade
of
carpet is needed. A room with a high volume of traffic will need a high-grade
carpet.

The project manager is responsible for developing a project quality plan that
defines the
quality expectations and assures that the specifications and expectations are met.
Developing a good understanding of the project deliverables through documenting
specifications and expectations is critical to a good quality plan. The processes
for assuring

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that the specifications and expectations are met are integrated into the project
execution
plan. Just as the project budget and completion dates may change over the life of a
project,
the project specifications may also change. Changes in quality specifications are
typically
managed in the same process as cost or schedule changes. The impact of the changes
is
analyzed for impact on cost and schedule, and with appropriate approvals, changes
are
made to the project execution plan.

The Project Management Institute’s A Guide to the Project Management Body of

Knowledge
(PMBOK Guide) has an extensive chapter on project quality management. The material
found in this chapter would be similar to material found in a good operational
management
text. Although any of the quality management techniques designed to make
incremental
improvement to work processes can be applied to a project work process, the
character of
a project (unique and relatively short in duration) makes small improvements less
attractive on projects.

Rework on projects, as with manufacturing operations, increases the cost of the

product or
service and often increases the time needed to complete the reworked activities.
Because of
the duration constraints of a project, the development of the appropriate skills,
materials,
and work process early in the project is critical to project success. On more
complex
projects, time is allocated to developing a plan to understand and develop the
appropriate
levels of skills and work processes.

Project management organizations that execute several similar types of projects may
find
the process improvement tools useful in identifying and improving the baseline
processes
used on their projects. Process improvement tools may also be helpful in
identifying cost
and schedule improvement opportunities. Opportunities for improvement must be found
quickly to influence project performance. The investment in time and resources to
find
improvements is greatest during the early stages of the project, when the project
is in the

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planning stages. During later project stages, as pressures to meet project schedule
goals
increase, the culture of the project is less conducive to making changes in work
processes.

Another opportunity for applying process improvement tools is on projects that have
repetitive processes. A housing contractor that is building several identical
houses may
benefit from evaluating work processes in the first few houses to explore the
opportunities
available to improve the work processes. The investment of $1,000 in a work process
that
saves $200 per house is a good investment as long as the contractor is building
more than
five houses.

Project Team: Human Resources and Communications

Staffing the project with the right skills, at the right place, and at the right
time is an
important responsibility of the project management team. The project usually has
two
types of team members: functional managers and process managers. The functional
managers and team focus on the technology of the project. On a construction
project, the
functional managers would include the engineering manager and construction
superintendents. On a training project, the functional manager would include the
professional trainers; on an information technology project, the software
development
managers would be functional managers. The project management team also includes
project process managers. The project controls team would include process managers
who
have expertise in estimating, cost tracking, planning, and scheduling. The project
manager
needs functional and process expertise to plan and execute a successful project.

Because projects are temporary, the staffing plan for a project typically reflects
both the
long-term goals of skilled team members needed for the project and short-term
commitment that reflects the nature of the project. Exact start and end dates for
team
members are often negotiated to best meet the needs of individuals and the project.
The
staffing plan is also determined by the different phases of the project. Team
members
needed in the early or conceptual phases of the project are often not needed during
the

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later phases or project closeout phases. Team members needed during the execution
phase
are often not needed during the conceptual or closeout phases. Each phase has
staffing
requirements, and the staffing of a complex project requires detailed planning to
have the
right skills, at the right place, at the right time.

Typically a core project management team is dedicated to the project from start-up
to
closeout. This core team would include members of the project management team:
project
manager, project controls, project procurement, and key members of the function
management or experts in the technology of the project. Although longer projects
may
experience more team turnover than shorter projects, it is important on all
projects to have
team members who can provide continuity through the project phases.

For example, on a large commercial building project, the civil engineering team
that
designs the site work where the building will be constructed would make their
largest
contribution during the early phases of the design. The civil
engineering lead would bring
on different civil engineering specialties as they were needed. As the civil
engineering work
is completed and the structural engineering is well under way, a large portion of
the civil
engineers would be released from the project. The functional managers, the
engineering
manager, and civil engineering lead would provide expertise during the entire
length of the
project, addressing technical questions that may arise and addressing change
requests.

Project team members can be assigned to the project from a number of different
sources.
The organization that charters the project can assign talented managers and staff
from
functional units within the organization, contract with individuals or agencies to
staff
positions on the project, temporarily hire staff for the project, or use any
combination of
these staffing options. This staffing approach allows the project manager to create
the
project organizational culture. Some project cultures are more structured and
detail
oriented, and some are less structured with less formal roles and communication

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requirements. The type of culture the project manager creates depends greatly on
the type
of project.

Communications
Completing a complex project successfully requires teamwork, and teamwork requires
good communication among team members. If those team members work in the same
building, they can arrange regular meetings, simply stop by each other’s office
space to get
a quick answer, or even discuss a project informally at other office functions.
Many complex
projects in today’s global economy involve team members from widely separated
locations,
and the types of meetings that work within the same building are not possible.
Teams that
use electronic methods of communicating without face-to-face meetings are
called virtual teams.
Communicating can be divided into two categories: synchronous and asynchronous. If
all
the parties to the communication are taking part in the exchange at the same time,
the
communication is synchronous. A telephone conference call is an example of
synchronous
communication. When the participants are not interacting at the same time, the
communication is asynchronous. The letter a at the beginning of the word means not.
Communications technologies require a variety of compatible devices, software, and
service providers, and communication with a global virtual team can involve many
different time zones. Establishing effective communications requires a
communications
plan.

Project Risk

Risk exists on all projects. The role of the project management team is to
understand the
kinds and levels of risks on the project and then to develop and implement plans to
mitigate these risks. Risk represents the likelihood that an event will happen
during the life
of the project that will negatively affect the achievement of project goals. The
type and
amount of risk varies by industry type, complexity, and phase of the project. The
project

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risk plan will also reflect the risk profile of the project manager and key
stakeholders.
People have different comfort levels with risk, and some members of the project
team will
be more risk adverse than others.

The first step in developing a risk management plan involves identifying potential
project
risks. Some risks are easy to identify, such as the potential for a damaging storm
in the
Caribbean, and some are less obvious. Many industries or companies have risk
checklists
developed from past experience. The Construction Industry Institute published a
one-
hundred-item risk checklist [2]that provides examples and areas of project risks.
No risk
checklist will include all potential risks. The value of a checklist is the
stimulation of
discussion and thought about the potential risks on a project.

The project team then analyzes the identified risks and estimates the likelihood of
the risks
occurring. The team then estimates the potential impact of project goals if the
event does
occur. The outcome from this process is a prioritized list of estimated project
risks with a
value that represents the likelihood of occurrence and the potential impact on the
project.

The project team then develops a risk mitigation plan that reduces the likelihood
of an
event occurring or reduces the impact on the project if the event does occur. The
risk
management plan is integrated into the project execution plan, and mitigation
activities are
assigned to the appropriate project team member. The likelihood that all the
potential
events identified in the risk analysis would occur is extremely rare. The
likelihood that one
or more events will happen is high.

The project risk plan reflects the risk profile of the project and balances the
investment of
the mitigation against the benefit for the project. One of the more common risk
mitigation
approaches is the use of contingency. Contingency is funds set aside by the project
team to
address unforeseen events. Projects with a high-risk profile will typically have a
large
contingency budget. If the team knows which activities have the highest risk,
contingency

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can be allocated to activities with the highest risk. When risks are less
identifiable to
specific activities, contingency is identified in a separate line item. The plan
includes
periodic risk plan reviews during the life of the project. The risk review
evaluates the
effectiveness of the current plan and explores for possible risks not identified in
earlier
sessions.

Project Procurement
The procurement effort on projects varies widely and depends on the type of
project. Often
the client organization will provide procurement services on less complex projects.
In this
case, the project team identifies the materials, equipment, and supplies needed by
the
project and provides product specifications and a detailed delivery schedule. When
the
procurement department of the parent organization provides procurement services, a
liaison from the project can help the procurement team better understand the unique
requirements of the project and the time-sensitive or critical items of the project
schedule.
On larger, more complex projects, personnel are dedicated to procuring and managing
the
equipment, supplies, and materials needed by the project. Because of the temporary
nature
of projects, equipment, supplies, and materials are procured as part of the product
of the
project or for the execution of the project. For example, the bricks procured for a
construction project would be procured for the product of the project, and the
mortar
mixer would be equipment procured for the execution of the project work. At the end
of the
project, equipment bought or rented for the execution of the work of the project
are sold,
returned to rental organizations, or disposed of some other way.

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schedule and goals.

KEY TAKEAWAYS
 During the start-up phase, the project leader develops the project
infrastructure
used to design and execute the project. A team is formed to create agreement
among
project stakeholders on the goals, cost, and completion date. Plans for
executing the
project, managing the schedule and quality, and controlling the budget are
created.
 The scope statement establishes project parameters that define what will be
done.
 The project schedule begins with a milestone schedule followed by a WBS and
a

date is the float. Shortening the critical path is called crashing the project.
 Cost estimating begins with a conceptual or ballpark estimate that is
followed by a
ROM estimate. A project budget is determined from the cost of the tasks in the
WBS.
Costs are monitored during the project and estimates updated if the costs vary
from
expectations.

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 Project quality begins with the specifications of materials and labor. A
quality plan
creates a process for assuring the requirements and specifications of the
project are
met. Quality improvement tools can be applied to projects if the company has
several
similar projects.
 Team members are selected to manage functions and processes. The staffing
plan
assigns people as needed. Sources of team members are company employees,
contractors, new hires, and partners.
 The risk on a project reflects the number of things that can possibly
happen that
will have a negative effect on the project and the probability of those events
happening.
 The provider of procurement management depends on the size of the project
and
the organization. Commodities are purchased from the lowest bidder, while
specialty
items are purchased from bids or from partners.

EXERCISES
1. During the start-up phase, the first estimate of the cost of the project is
called the
__________ or ballpark estimate.
2. Shortening the schedule to meet the project completion date is called
___________the schedule.
3. Why would it be important to get the stakeholders in a project to actually
sign the
scope statement?
4. What is the difference between a milestone schedule and a work breakdown
schedule?

Areas of Knowledge

Write one or two sentences in which you describe each area of project
management
knowledge—as defined by the Project Management Institute.

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1. Start-up
2. Scope
3. Time
4. Cost
5. Quality
6. Team selection (human resources)
7. Communications
8. Risk
9. Procurement

[1] Project Management Institute, Inc., A Guide to the Project Management Body of

Knowledge
(PMBOK Guide), 4th ed. (Newtown Square, PA: Project Management Institute, Inc.,
2008), 115–
16.
[2] Construction Industry Institute Cost/Schedule Task Force, Management of Project
Risks and
Uncertainties(Austin, TX: Construction Industry Institute, 1989).

1.6 Exercises
Exercises at the end of the chapter are designed to strengthen your understanding
and
retention of the information recently acquired in the chapter.

ESSAY QUESTIONS
Write several paragraphs to provide more in-depth analysis and consideration
when
answering the following questions.

1. If you were planning to change the landscaping around the location where
you or a
friend lives and decided to approach it like a project, describe the start-up
activities
you would use. Refer to the elements of a project start-up as described in
this chapter.

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2. Describe a project you have worked on where you experienced scope creep.
Begin
by defining scope creep in your own words. Describe the project, how the scope
creep
occurred, and the effect it had on the project cost, quality, and completion
date.

DISCUSSION
The exercises in this section are designed to promote exchange of information
among
students in the classroom or in an online discussion. The exercises are more
open
ended, which means that what you find might be completely different from what
your
classmates find, and you can all benefit by sharing what you have learned.

1. Client satisfaction. Should the project manager go beyond the written

requirements in the project scope statement to satisfy the client? Does the
answer to
this question depend on the role of the project in the organization? For
example, does
it matter if the organization is a consulting firm that sells project
management or if the
project is done for another department in the same organization? Form an
opinion on
this topic, and write a few paragraphs on it to organize your thoughts on the
subject.
Be prepared to share your thoughts with classmates. Submit the work as
directed by
your instructor.
2. Organizational priorities. Consider that three different organizations are
planning
to construct a building for their own use. The organizations are a for-profit
company, a
religious group, and a local school district. Choose three project knowledge
areas, and
consider how the project might be affected in each of these areas by the
different
types of organizations behind the project. Write a few paragraphs on this
topic to
organize your thoughts on the subject, and be prepared to share your thoughts
with
classmates. Submit the work as directed by your instructor.

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2.1 Using a Project Profile
LEARNING OBJECTIVES
1. Identify project attributes that can be used for project profiling.
2. Define project profiling.

A few years ago, I observed a project manager with a long list of successful
projects
absolutely struggle with a project. As I looked around, I noticed that often times
project
managers who do superb jobs on some projects will fail on others. What causes this
to
happen? Why were project managers successful on some projects but struggling on
others?

Even though all projects are by definition unique, there are attributes that are
common
among projects that allow the characterization or profiling of a project. We can
look at just
two project attributes and develop some understanding of the project. A large
project that
will be executed in at least three locations will have a very different profile
from a small
project that will be executed in one location. These two attributes—size and
location—
provide information about the project that will enable a manager in the parent
organization to assign a project manager with the appropriate knowledge and skills.
We
can then develop an execution approach to increase the likelihood of success.

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Project managers have not always been assigned to projects based on their skills
and the
skills required by the project. Research by the Construction Industry
Institute [1] indicated
that the number one criterion for assignment of a project manager to a project was
availability. Even if available, the ideal project manager for a large construction
project may
not be a good fit for a software development project. The technical knowledge
needed to
manage these projects is not the same and having the wrong technical knowledge may
make the difference between a successful project and project failure.

Even within the same industry, like the construction industry, different skills are
needed by
the project manager for different projects. For example, the construction of an
office
building in downtown Philadelphia is a very different project from the construction
of a
chemical plant in Mexico. The differences in these projects require different
skills and
different execution approaches. Organizations have not had good tools for
understanding
and matching the needs of a project with the project manager who has the right
skills and
experience. Developing a project profile is one method for developing an
understanding of
the project that will allow a systematic approach to developing an execution plan
based on
the profile of the project and selecting a project manager who has the right kind
of
experience and skills.

Project profiling is the process of extracting a characterization from the known

attributes
of a project. The characterization will provide a more comprehensive understanding
of the
project that should result in developing an appropriate execution approach and the
assignment of organizational resources. In different terms, project profiling is a
process
that summarizes what is known about the attributes of a project and places the
project into
a category with other projects that have similar characteristics. For example, you
can
characterize a project as a large project or a small project. The size of the
project becomes
the profiling attribute. You can characterize a project as domestic or global, and
the
location of the project becomes the profiling characteristic.

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A company that has twenty projects may determine that four of these projects are
estimated to cost more than $1 million dollars and the remaining sixteen projects
are
estimated to cost much less. The company then communicates that all projects over
$1
million be considered a large project. The company now establishes a rule that
large
projects will require a project manager with at least five years experience, it
will have a
vice president as executive sponsor, and it will require formal quarterly reports.
In this
example, one characteristic is used to develop the organization’s project
management
approach to their twenty projects.

KEY TAKEAWAYS
 Project profiles can be created based on attributes such as budget and size
to
determine a systematic approach to developing an execution plan and selecting
a
project manager.
 Project profiling is the process of extracting a characterization from the
known
attributes of a project.

EXERCISES
1. Several types of project profiles use budget size, location, and __________
knowledge.
2. Project profiling is the process of extracting a characterization from the
known
_____________ of a project.
3. Describe how location can make a difference in the difficulty of a project.
4. Why is it valuable to create a project profile? Base your answer on the
text of this
chapter but use your own words.

Project Profiling

Propose another attribute that might be used for project profiling besides
budget size,
location, and technical knowledge. Include the following in your answer:

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 Describe the categories into which you would divide your attribute.
 Describe the skills or knowledge a project manager would need to work on a
project in each of your categories.

[1] Construction Industry Institute, “Executive Summary,” RR103-11—Optimizing

Project
Organizations, 2009, https://www.construction-
institute.org/scriptcontent/more/rr103_11_more.cfm (accessed June 18, 2009).

2.2 Project Profiling Models

LEARNING OBJECTIVE
1. Identify different methods of typing projects.

Aaron J. Shenhar and Dov Dvir [1] developed a typology—classification or profile—of

engineering projects that reflected two dimensions. The first dimension reflected
the
technological uncertainty and ranged from low tech, medium tech, and high tech to
super
high tech. Although projects involve the use of various levels of technology,
Shenhar and
Dvir develop criteria for each type of technological uncertainty that enabled the
project to
be typed. The second dimension reflected the system scope. The system scope
dimension
ranged from assembly projects that dealt with building a single component, to
system
projects that included interactive elements, to array projects that included a wide
dispersal
of interactive systems and subsystems.

Shenhar and Dvir observed that the project execution approach was connected to the
project type. The study identified different management patterns associated with
project
type as well as different management tools and practices. As the project system
scope
became more complex and the system scope of the project became larger, more
sophisticated management tools were put in place to reduce project uncertainty. As
project

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technology increased, project managers became more invested in processes to manage
technical issues such as redesign and testing. As projects increased in system
scope, project
managers became more invested in formal planning and control issues. In later
research,
Shenhar [2] developed recommendations for adjusting the project management approach
based on the project typology—systematic classification or profile. For example,
project
managers will use more risk management techniques (see Chapter 11 "Managing Project
Risk" on risk management) when the technological uncertainty is high.

Robert Youker [3] identified basic differences in project types. Among the

attributes he used
were the uncertainty and risk, level of sophistication of the workers, the level of
detail in
the planning, the newness of the technology, and the time pressure. Youker also
looked at
project size, duration, industrial sector, geographic location, number of workers,
cost,
complexity, urgency, and organizational design as attributes that help determine a
project
profile.

KEY TAKEAWAYS
 The typology of Shenhar and Dvir characterized projects based on the
attributes of
technological uncertainty and complexity of scope.
 Youker used the attributes of uncertainty and risk, sophistication of
workers,
planning detail, industrial sector, location, number of workers, cost,
complexity,
urgency, and organizational design.

EXERCISES
1. The typology of Shenhar and Dvir used attributes of technological
____________
and project scope.
2. The typology of Youker used several attributes, including the ________ of
workers.

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3. What are the two attributes of a project that Shenhar and Dvir used to
characterize
projects?

Simple versus Complex Profiles

Simple profiles are easier to use than profiles that consider many attributes.
Compare
the profiling method of Shenhar and Dvir with the profiling method of Youker.
Address
the following issues:

 Which profiling method would be faster and easier to communicate to team

members? (Explain your choice.)
 Which attributes used by Youker but not used by Shenhar and Dvir do you
think are
important? Explain your answer and give an example of a situation where
consideration of the attribute would make a difference to the project.

[1] Aaron J. Shenhar and Dov Dvir, “Toward a Typological Theory of Project

Management,” Research Policy25 (1996): 607–32.
[2] Aaron J. Shenhar, Adapting Your Project Management Style: The Key to Project
Success (Hoboken, NJ: Stevens Institute of Technology, 1999).
[3] Robert Youker, “Defining the Hierarchy of Project Objectives,” IPMA
Conference (Slovenia:
American Society for Advancement of Project Management, 1998).

2.3 Complex Systems and the Darnall-

Preston Complexity Index
LEARNING OBJECTIVES
1. Describe the characteristics of complex systems.
2. Identify the categories used by the Darnall-Preston Complexity Index.

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Understanding and managing complex systems like a project require some systems
concepts that have been developed in other disciplines and applied to project
management
as a tool to make complex projects manageable.

Complex Systems
When is a project complex? The answer to this question depends on how you define
complex. One way to explore this question is to look at complexity models in
various
disciplines for insights that may apply to project management. In biology, the
simplest
plant is composed of one cell. As the cellular structure increases in number of
cells and the
number of connections to other cells increases, the plant life is seen as more
complex. In
the animal kingdom, the single cell ameba is the simplest animal, and life becomes
more
complex as the numbers of cells combine to form muscles and organs.

The complexity of a system is usually determined by the number of parts or

activities, the
degree of differentiation between the parts, and the structure of their
connections.
Heterogeneous and irregularly configured systems are complex, such as organisms,
airplanes, and junkyards. Order is the opposite of complex. Ordered systems are
homogenous and redundant, like an interstate toll booth or a production line in a
factory.
Complex systems have multiple interacting components whose collective behavior
cannot
be simply inferred from the behavior of the components. [1]

In addition to the number of parts, the degree of differentiation between parts and
the
number, type, and strength of relationships between parts also influences the
degree of
complexity. For example, the transistors in a computer have three connections to
other
parts of the computer, but each nerve cell in the human brain can be connected to
thousands of other cells in the brain, which is why the human brain is more complex
than a
computer. Complexity is context dependent. A project is more or less complex in
relation to

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the number of activities, the type and strength of relationships to other project
activities,
and the degree and type of relationships to the project environment.

Projects are complex adaptive systems. A complex adaptive system is a system

consisting
of a large number of parts or activities that interact with each other in numerous
and
various ways. A complex adaptive system is adaptive if the activities adjust or
react to the
events of the environment. Successful adaptive systems adjust in a way that
facilitates or
allows the system or project to achieve its purpose.

The dependence of the project on the activities, the interdependence of the

activities, and
the specialization of the activities underscore the relationship dependence of
project
activities. This relationship dependence is a key aspect of complex adaptive
systems. The
nature of complex adaptive systems can be probed by investigating the impact of
change in
one activity and the effect on other activities and the behavior of the whole.
Activities must
be studied and understood as interrelated, connected parts of the whole. If you
remove a
computer chip from a computer and the computer powers down, do not assume the
purpose of the chip was to provide power to the computer. If you remove or shorten
a
project kickoff activity, do not assume the project will finish earlier because of
the
dependence of later project activities on project kickoff activities. Any change to
the kickoff
activities will impact other activities and the project as a whole.

Chemical Company
A chemical company was building a new plant in Tennessee with a new design model
that
was intended to shorten the design phase on the project and lower the cost. The
design of
the plant was managed by a United States–based company with part of the design work
contracted to an Indian company. The engineers in the United States would work on
the
design and would electronically transfer the design work to India at the end of the
day.
Engineers in India, many who had graduated from U.S. colleges, continued to work on
the

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design and at the end of the day would electronically transfer the work back to the
United
States. The project would benefit from differences in time zones that would allow
work on
the project twenty-four hours per day. The project would also benefit from the
lower
engineering wages in India. The project approach was abandoned when the project
started
falling behind schedule. The added complexity of the project offset the scheduling
and cost
benefit. The project complexity profile became significantly less complex when the
execution approach changed from global to domestic partnering. The execution model
could have worked but would have required more investment during the start-up phase
of
the project.

Complex adaptive systems have three characteristics that are also reflected in
complex
projects.

Complex Adaptive Systems Tend to Self-Organize

Formal organizational charts indicate reporting relationships but are not very
effective at
displaying project relationships. Projects organize around the work, phases, or
activities.
The organization of the project reacts to the nature of the work at any given
phase.

During the start-up meeting of a large complex project, the project manager
facilitated the
development of the project organization chart that included all the major companies
and
leaders from the client and key subcontractors. After the chart was complete, the
project
manager ripped the chart up in front of the entire project team to demonstrate his
key
message, which was that there are formal reporting relationships, but the real
leadership
and communication will change during the life of the project. In other words, the
system
will adapt to meet the needs of the project at each phase. During the design phase,
the
engineering team will identify the primary needs and communication will center on
supporting the engineering efforts. Later, the procurement team will take the lead
as
critical equipment and supplies are identified and purchased. Later in the project,
the

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construction team takes the lead as the project moves from the design offices to
the field
and the engineering and procurement teams support the construction effort.

Informally, the project team reorganizes information flows and priorities to

support the
current work of the project and a good project manager facilitates this adaptive
behavior of
the project organization by minimizing the impact of formal authority and
processes.

Complex Systems Adapt to Changing Environments

A deterministic system is a system that will produce the same results if you start
with the
same conditions. The outcome can be reliably predicted if you know the starting
conditions. For example, if you fire a rifle several times at a target, the hits on
the target will
be closely grouped if all the initial conditions are almost identical. A nonlinear,
or chaotic,
system can produce wildly different results even if the starting conditions are
almost
exactly the same. If today’s weather pattern is almost exactly the same as it was
on a
previous date, the weather a week later could be entirely different. Projects are
usually
nonlinear systems. If we execute an identical complex project three different
times, we
would deliver three different outcomes. We start with the assumption that the
project is
deterministic and use scenarios and simulations to develop the most likely outcome,
yet a
small change such as the timing of someone’s vacation or a small change in the
delivery
date of equipment can change the entire trajectory of a project.

Drug Manufacturing Facility

A pharmaceutical company in California developed a drug that improved the quality
of life
for people with arthritis and in some cases prevented serious debilitations and
even death.
The drug was in the final FDA testing stage, and the company decided to accept the
risk and
proceed with designing and building a facility to manufacture the drug. The company
had
done this type of project before, and some managers felt that the outcome would be
fairly
predictable. The company assigned the lead scientist as the project manager to get
the
project started. Two weeks into the project start-up, the company president
realized the

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project needed a project manager with more engineering and construction expertise
and
hired a new person to manage the project. Then the company decided to build the
facility
on land the company owned in Colorado, and the project team began designing a
facility
that would fit the existing site. Thirty days into the design phase, the company
found an
existing facility that could be retrofitted to meet the production needs of the new
drug.
During the first week of construction, the drug failed an FDA test and the project
was
placed on hold. This project environment was highly volatile, and the project plan
and
organization adjusted and evolved to respond to each of these changes.

Not all projects experience this degree of environmental turbulence, yet all
projects
experience some forms of environment shift during the life of the project. This is
one of the
reasons project managers develop an aggressive change management process. The
purpose
of the change management process is not to stop change but to incorporate the
change into
the project planning and execution processes. Projects, like all other complex
adaptive
systems, must respond to the evolving environment to succeed. Plan as if the
project is
deterministic but be prepared for unpredictable changes.

In addition to responding to changes in the project environment, the internal

project
organization and environment is in a constant state of change. New people become
members of the team, people quit, retire, and get sick. The office roof starts
leaking,
headquarters rolls out a new computer program required for all workers, or the
project’s
lead engineer cannot get her immigration visa extended. These are real examples of
events
that occurred on one project, and the project team adjusted to each event. The
adaptation
to changes in the project’s internal situation while also adapting to the external
environment reflects the coevolving nature of a complex adaptive system. An
increase in
the number of events within the project and the project environment that are likely
to
change during the life of the project is reflected in an increase in the complexity
of a
project.

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Darnall-Preston Complexity Index
Profiling a project correctly requires a system that is relatively easy to use but
that includes
enough attributes to capture all the most important characteristics of a complex
project.
TheDarnall-Preston Complexity Index (DPCI™) achieves this objective by grouping
eleven
attributes into four broad categories: internal attributes, external attributes,
technological
complexity, and environmental attributes.

Projects are more likely to fail in the beginning, not in the end. This generalized
statement
reflects the importance of understanding the environment in which a project will be
executed and the importance of developing an execution plan that can be
successfully
implemented within this environment. Recovery costs can be extremely high for
projects
where the environment is misread or the execution plan does not address critical
issues of
the project environment. In addition to cost overruns and delays in the project,
execution
plans that are not aligned with the project environment can create barriers that
make
recovery difficult, and in some cases, the business purpose of the project cannot
be met.
The DPCI is a tool to assist project stakeholders in developing a comprehensive
analysis of
the project environment and a project execution plan more aligned with that
environment.
Understanding and aligning a project with the project’s environment increase the
likelihood of achieving project success.
The foundation of a sound project execution plan is an assessment of the project
environment. This assessment provides the information on which the execution plan
is
built. In the absence of an accurate assessment of the project environment, the
project
leadership makes assumptions and develops the execution plan around those
assumptions.
The quantity and quality of those assumptions will significantly influence the
effectiveness
of the project execution plan. The amount of information available to the project
manager
will increase over time and assumptions will be replaced with better information
and
better estimates. As better tools are developed for evaluating the project
environment,
better information will become available to the project manager.

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The project environment includes all the conditions that can influence the outcome
or
success of the project. Project size, technological complexity, cultural and
language
barriers, the political landscape, and resource constraints are some of the
components of
the project environment that can influence the project success. Understanding these
influences and developing a project profile creates a foundation for building an
effective
project execution plan.
The DPCI is one model for understanding and profiling projects. This index assesses
the
complexity level of key components of a project and produces a unique project
profile. The
profile indicates the project complexity level, which provides a benchmark for
comparing
projects and provides information about the characteristics of a project that can
then be
addressed in the project execution plan.
The DPCI provides project stakeholders with information about the project to define
the
experience, knowledge, skills, and abilities needed by the project manager. The
DPCI also
has implications for the composition, organization, and skills needed by the
project
leadership team. The DPCI provides information and a context for developing the
project
execution plan and for assessing the probability of success.

KEY TAKEAWAYS
 Complex systems have many different parts that interact with each other in
different and often unpredictable ways. They adapt to changes in their
external and
internal environments.
 The Darnall-Preston Complexity Index (DPCI) groups project attributes into
four
categories: external attributes, internal attributes, technological
complexity, and
environmental attributes.

EXERCISES
1. Complex systems _____ to changes in their external and internal
environments.
2. The Darnall-Preston Complexity Index (DPCI) groups project attributes into
four
categories: external, internal, _________, and environmental.

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 3. What are the characteristics of a system that make it complex?

Complex Systems

Consider the example of the drug manufacturing facility. Describe in your

own words
how this project demonstrated the attributes of a complex system.

 External
 Internal
 Technological
 Environmental

[1] Stephen Jay Gould, Full House: The Spread of Excellence from Plato to

Darwin (New York:
Three Rivers Press, 1996).

2.4 Darnall-Preston Complexity Index Structure

LEARNING OBJECTIVES
1. Describe each of the external attributes that contribute to project
complexity.
2. Describe each of the internal attributes that contribute to project
complexity.
3. Describe each of the technological attributes that contribute to
project complexity.
4. Describe each of the environmental attributes that contribute to
project
complexity.

The Darnall-Preston Complexity Index (DPCI™) is designed to develop a project

profile that
reflects different aspects of the project that will influence the approach to
leading and
executing the project. The DPCI is built on four categories of attributes:
1. External. Environmental attributes that are in existence at the
beginning of the
project, such as size, duration, and available resources

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2. Internal. Clarity of project objectives, the clarity of scope, the
organizational
complexity, and stakeholder agreement
3. Technological. Newness of the technology and familiarity of team
members with the
technology
4. Environmental. Legal, cultural, political, and ecological

The DPCI was developed around four assumptions:

1. All projects are unique.

2. Projects have common characteristics.
3. These characteristics can be grouped together to create a project
profile.
4. There is an optimum execution approach for each project profile and
therefore an
optimum set of skills and experience for the project manager and execution
team.

External Attributes
The external attributes include those issues that are typically established
early in the
project definition phase and are usually outside the direct control of the
project
management team. The project size can be a product of the dollars needed to
execute the
project or project cost. The cost of the project is estimated during the
conceptual phase of
the project. At the time the project is authorized, the cost or size of the
project is
established. The duration or time allocated to complete the project and the
resources
available are also attributes that are established when the project is
authorized.

Size

Project size is a relative concept. How do we decide if something is large or

small? A
150-pound person is big if the person is ten years old. A 150-pound person is
small if the
person is a professional football lineman. The frame of reference provides the
context in
which size is determined.

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The size of a project is also relative. A $250 million oil refinery expansion is a
relatively
small project in an industry where billion dollar projects are common. A $250
million
pharmaceutical development project or software development project would be
considered a large project. The size of a project is determined by the context of
the
industry and the experience of the team executing the project.

Within the construction industry, firms usually specialize in projects that fall
within a
defined range. Small firms usually execute small projects and large firms usually
execute
larger projects. There is a size range for which the company experience, management
skills, tools, and work processes are primarily designed. This size range or
comfort zone
exists for both the company and the members of the project team executing the
project.

When a project team executes a project outside their comfort zone, stress is placed
on both
the tools and project team. When a project is larger than the comfort zone of a
company,
stresses are placed on the ability to provide experience and appropriate work
processes,
and the results are typically cost overruns and schedule delays. To mitigate this
stress,
some companies will divide large projects into smaller projects and execute the
smaller
projects with separate dedicated staff and resources. The key to success then
becomes the
coordination of the small projects to behave as if they are one large project.

Copper Mining in Argentina

One example of this process was a copper mining project in Argentina. The comfort
zone of
the company was projects ranging from $150 million to $500 million. Projects over
$500
million were divided into smaller projects. The mining project was estimated to
cost a little
over $1 billion and the project was divided into three projects, each with a
project manager
and leadership team. Although the projects shared some resources and reported to an
oversight project manager, each project developed a separate execution plan that
included
a budget and schedule.

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 When a company is executing a project that is much smaller than the company
norm,
resources are often misused and inappropriate work processes are utilized. The
result
often increases the project costs. Some companies with a history of executing
large projects
have set up a small project group to execute smaller projects. These groups
establish a
different culture, develop appropriate work processes, and use tools designed
to execute
smaller projects.

The more the project size is outside the comfort zone of the project, the more
stress is
created for the project. This is true on both ends of the spectrum. Both
smaller and larger
projects that fall outside the comfort zone of the project management team will
create
stress for the project. New skills, tools, and processes will need to be
developed to manage
the project, and this activity will absorb management time and energy. The
higher the
stress level created by executing a project outside the comfort zone of the
organization, the
greater the impact on the complexity level of the project.

Duration

The duration of a project is often set by the parent organization that charters
the project
with a deadline that reflects the business purpose of the project. The
following are
examples of projects with end dates that are established to meet the
organization’s
business purpose:

 A new software program for a university to be implemented in time for

registering
students in the fall
 A new product to be introduced to the marketplace at the industry’s
major
conference
 A new high school to be constructed and open next fall

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The project team also estimates the duration of the project and establishes a
project end
date based on normal work (e.g., forty hours per week) and the availability of
resources.

Sometimes the normal time needed to complete a project is longer than the time
available.

Super Bowl Hotel Space

The investors in a planned hotel start booking rooms for an upcoming Super Bowl
weekend
a year before the hotel is finished. This is six weeks ahead of the time estimated
to build
and open the hotel. People will be working overtime, suppliers will be paid a bonus
to
supply materials early, and management is meeting with city officials to expedite
permitting issues. A new project schedule is developed based on these changes to
the
execution approach, and now the project schedule has zero float.

The result of this six-week compression to the project

schedule is additional stress on the project. Significant management time and
energy will
be invested in tracking and managing schedule issues. Every issue that arises will
need to
be resolved quickly and involve the project’s senior manager to assure the project
schedule
does not slip. This additional stress increases the overall project complexity.

Resource Availability

Projects require both human and tangible resources. The project requires people
with the
right experience, knowledge, and skills to accomplish the assigned tasks.
Construction
projects typically require resources such as bricks and cranes. Some projects
require
specialized subcontractors with skills not found within the project team. Each of
these
resources required by the project will be needed at the point in the project
schedule when
the materials or skills are required. When these resources are scarce or not
available,
additional management time and energy is needed.

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Boeing Dreamliner
In 2003, Boeing announced the development of the new 787 Dreamliner Airplane. The
airframe for the new airplane was a new composite material. During the same period
that
Boeing was beginning construction of the new manufacturing facility, other new
planes
were announced, and the Air Force increased its demand for people with airplane
manufacturing and maintenance experience. A project was chartered to train the
people
the new plant would need to manufacture the Boeing Dreamliner. The project manager
found that the people with the skills and knowledge needed to develop the
curriculum and
train the workers were in short supply. In addition to the lack of skilled
trainers, the
materials needed for the workers to train on were also scarce. The project manager
dedicated significant time and energy developing the resources the project needed.

When resources needed to execute the project are not readily available, the project
leadership dedicates more management time and energy to acquiring the resources or
finding innovative solutions to accomplish the project goals without the needed
resources
or with creative alternative solutions. The more time and energy the management
team
must dedicate to searching for resources or alternatives, the more stress on the
project.
The more scarce and more important the resources, the more stress that is placed on
the
project.

Internal Attributes

The internal attributes are within the control or influence of the project manager.
Internal
attributes include clarity of objectives, clarity of scope, the organizational
complexity, and
stakeholder agreement. Although the clarity of objectives, as with the other
attributes, can
be improved during the life of the project, the project profile reflects the
project at a given
time. If the project objectives are not clear during the evaluation of the project,
this lack of
clarity impacts the complexity of the project.

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Clarity of the Project Objectives

Project decisions are made based on how these decision help the project meet its
objectives. If the objectives are unclear, the team will not make the best
decisions. The
greater the confusion for the project team on the goals and objectives of the
project, the
greater the impact on the complexity of the project.

Confusion Over Objectives in Philadelphia

A consultant was asked to evaluate the likelihood of success of a large project in
Philadelphia. The consultant interviewed the project leadership and asked if the
goals of
the projects were clear. Each member of the leadership team responded that the
goals and
objectives were clear. When asked what the goals were, the answers varied greatly.

Clarity of Objectives Saves Millions

A critical piece of equipment was being fabricated in Europe for a construction
project in
South America. The cost to transport the equipment by air was $200,000 more than by
ship. Transporting the equipment by ship would also delay the project two months.
Early in
the project, it was determined that any delay in the project would cost the project
over $1
million per month. Because the goals of the project were well understood, the
decision to
transport the equipment by air was made quickly and easily.

Island Ecology Protected

A large mining company initiated a copper mining project on an ecologically
sensitive
island in Indonesia. The company stated very clearly and forcefully that every
effort would
be made on the project to protect both the human and natural environment of the
island
during construction and operation. Every major decision passed through an
evaluation of
the impact on the island ecology. Although the island ecology increased the
complexity of
the project, the clear goals mediated the project complexity.

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Clarity of Scope

The project scope defines what is inside the project and what is outside. Does the
project to
train five hundred technicians for the Boeing 787 include recruiting and assessing
potential
employees? The project scope did include recruitment and assessment, but hiring
processes and drug testing belonged to Boeing. This scope was clear about which
responsibilities belonged to the contractor doing the training and which
responsibilities
belonged to the parent organization.

Not all project scopes are this clear. The development of a clear project scope
depends on
information available about what products and services will be required. A project
to
develop a vaccine for a new strain of flu may not include sufficient information to
develop
the processes the team will utilize to understand the flu virus and develop a
vaccine. As the
team develops more information, the scope can be further developed.

Leadership time and energy will be focused on developing scope clarity. The lack of
clarity
and the amount of time needed by the leadership team to develop a clear scope will
add to
the project complexity.

Organizational Complexity

The structure of the project’s client organization and the organizational decision-
making
processes influence the project complexity. A project with one client as the
central point for
making decisions and providing client approvals and technical information has only
one
relationship to manage and a streamlined communication process. Projects with a
team
representing the client require more of the project manager’s time and energy
managing
the client relationships and communication process. The client team approach brings
more
expertise and often more comprehensive project oversight, but it adds to the
project
complexity.

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Stakeholder Agreement

Often there is more than one major stakeholder in the project. An increase in the
number of
stakeholders adds stress to the project and influences the project’s complexity
level. The
business or emotional investment of the stakeholder in the project and the ability
of the
stakeholder to influence the project outcomes or execution approach will also
influence the
stakeholder complexity of the project. In addition to the number of stakeholders
and their
level of investment, the degree in which the project stakeholders agree or disagree
also
influences the complexity of the project.

A small commercial construction project will typically have several stakeholders in

addition to the client. All the building permitting agencies, environmental
agencies, and
labor and safety agencies have an interest in the project and can influence the
execution
plan of the project. The neighbors will have an interest in the architectural
appeal, the
noise, and the purpose of the building.

Tire Plant in India

A U.S. chemical company chartered a project team to design and build a plant to
produce
the raw materials for building truck tires designed for nonpaved roads. The plant
was to be
built in India a few years after an accident that killed several Indians and
involved a
different U.S. chemical company. When the company announced the new project and
began
to break ground, the community backlash was so strong that the project was shut
down. A
highly involved stakeholder can significantly influence your project.

Wind Turbine on a College Campus

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A small college in South Carolina won a competitive grant to erect and operate a
wind
turbine on campus. The engineering department submitted the grant as a
demonstration
project for engineering students to expose students to wind technology. The campus
facilities department found only one location for the wind turbine that would not
disrupt
the flow of traffic on campus. The engineering department found that location
unacceptable
for students who had to maintain the wind turbine. The county construction
permitting
department had no policies for permitting a wind turbine and would not provide a
building
permit. The college had to go to the county council and get an exception to county
rules.
The marketing department wanted the wind turbine placed in a highly visible
location to
promote the innovativeness of the college.

Each of the college’s stakeholders had a legitimate interest in the location of the
wind
turbine. The number of stakeholders on the project, multiplied by their passion for
the
subject and the lack of agreement on the location, increased the complexity of the
project.
Significant time and resources of the project will be dedicated to identifying,
understanding, and managing client expectations.

Technological Complexity
The technology of a project refers to the product of the project and not the
technology used
to manage the project. This technology is typically unique to the industry. A
pharmaceutical
project technology is the drug-making technology or pharmacology. The technology
for a
project to build a new automobile plant is the car production process. The key
stress on the
project is the newness of the technology. What aspects of the technology are known,
and
what aspects are unknown? Does the project combine technologies on the project that
have
never been combined?
Project technology that is newer and more complex will require more technological
expertise on the project team.

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Family Life Center
A church in western New York decided to build a new family life center that would
not use
electricity from the power grid. The charter of the project included statements
that
required the building to use renewable power sources and have an environmentally
friendly footprint. The project required the adaptation of a new technology for
producing
and managing power, location of the building relative to the sun, and landscaping
to
minimize water usage. Most of the technology was tested, and the project team
brought in
experts to help design and implement a program to meet the requirements of the
project.
The technology of the project required the project team to develop a new
understanding of
this technology and work processes to adapt the project to address the requirement
of the
technology.
Typically, the newer the technology and the less familiar the project team is with
the
technology, the greater the stress and the contribution to the complexity of the
project.

Project Environment
The project environment includes all the issues related to the environment that
will
influence the development and execution of the project plan. A project to build an
airport
expansion in Pittsburgh, Pennsylvania will have very different legal, cultural,
political, and
ecological issues to address from an airport expansion in Sã o Paolo, Brazil. The
environment attributes in Brazil require more planning, resources, and leadership
attention to successfully execute the project. The greater the number and
difficulty of the
issues, the greater the influence on the complexity of the project.

Legal

The legal issues on a project can be broad and include many different levels of
government.
Most local governments have various permits, such as business licenses and building

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permits, required to do work. Some projects will have security issues and will work
with
local law enforcement.

Workforce laws vary significantly in country, regional, and local jurisdictions.

The hiring
and management of workers can be a complex and time-consuming issue for some
projects.
Companies not used to working in a union environment will invest project resources
in
learning and adapting to the new environment. Scheduling holidays, supporting
maternity
leave, and dealing with workforce reduction issues surrounding project closeout
will vary
in each environment, industry, and project. Understanding and managing workforce
issues
on a project can be simple or very complex.

National, regional, and local taxes require a project tax approach or policy on
most
international projects and some domestic projects. Duties for equipment and
material
brought into a country add complexity to the procurement plan. Equipment used
temporarily to execute the project, such as a crane, is treated differently than
permanently
installed equipment, such as a pump. In some countries, a third party is hired to
expedite
the flow of materials through complex custom processes.

Copper Mining in Argentina

The new president of Argentina instituted a program to encourage economic
development.
One of the projects to support this program was a copper mining project in northern
Argentina. This is the desert area of Argentina with a basic agrarian economy. A
joint
venture was formed with the encouragement of the Argentina government between a
Canadian and Australian Company with all three entities owning a share of the new
company.
The conceptual design work was done in Canada with support from offices in Chile,
Argentina, and the United States. A U.S. contractor was awarded the contract to
design,
procure equipment, and build the mine. The project leadership team included members
from the United States, Canada, Australia, Argentina, Chile, Puerto Rico, Cuba, and
Lebanon.

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Materials were procured, transported, and brought through customs from twenty-one
different countries. Legal issues on this project consumed a great deal of
management
attention and sometimes affected the project execution. Materials were occasionally
delayed in customs, people with critical skills could not get visas to enter
Argentina, and
which country’s laws would apply to the contracts had to be debated.

Not every project will have significant legal issues. When legal issues are
involved, they are
typically significant and will add to the complexity of the project. Understanding
the legal
issues than can affect the project and developing a plan to address these issues
will reduce
the complexity of the project.

Cultural

Culture is a term that reflects the community’s assumptions, norms, values, and
artifacts.
Community includes the parent organization charting the project, the local
community or
communities where the project is executed, and the region and country where the
project
is located. The project team must understand the community’s culture and its
potential
impact on the project.

Culture also defines the meaning of work, truth, the value of nature,
relationships, and how
to communicate. Projects executed in various cultures will often experience
cultural
conflict.

Gender Difficulties in Argentina

A project team from the United States was responsible for executing a project in
Argentina.
The U.S. leadership team included women in key leadership positions, and the
Argentines
refused to take direction from females. The U.S. team believed strongly in their
leadership
capability and refused to make changes. This conflict was settled by senior
managers of
both organizations, and rules were established that respected all team members in

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leadership roles. The conflict did not go away, but the team was able to
successfully execute
the project with the original team. Delays were experienced on the project that
could be
traced to this cultural conflict.

Many organizations have rule-based cultures. Institutions of higher learning,

organizations
related to judicial organizations, and most government organizations are examples
of rule-
based organizations. The organizational structure and culture inhibits risk taking
through
established rules and policies. Projects are goal based and focus on plans and
processes to
achieve goals. Goal-based cultures promote assuming risk to achieve goals. Projects
that
are closely tied to a rule-based parent organization will often find conflict with
the parent
organization’s need to follow rules and the project’s need to accomplish goals.
This conflict
creates additional stress that adds to the project complexity.

On global projects, language, cultural conflict with the role of women, the
religious role in
daily activities, and even the concept of time can becomes issues on the project.
These
issues require project leadership to resolve and they add to the project
complexity. In some
countries and even different companies in the same country, meetings start on time,
and a
person arriving five minutes late will cause major disruption. In other situations,
meetings
can start within thirty minutes of the starting time without anyone objecting.

Communication Problem in India

A team of project experts was sent to India to evaluate a large construction
project. The
team arrived and reviewed the project documents and found the project on time and
meeting all project goals. After spending three days with various contractors and
team
managers, the team discovered the project was significantly behind schedule and
would
miss an important window during the monsoon season. A culture existed on the
project
where workers told the project management what they expected to hear, and the
difference between the progress of the project team and the progress reports became
so
large that the difference could not be reconciled during the original schedule of
the project.

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An increase in the number of cultures represented on the project team raises the
cultural
complexity. Increases in the number of cultures with which the project team must
interface
also increase the complexity of a project. Although this cultural diversity creates
leadership
challenges, it also presents opportunities. The diversity of cultures presents
various
approaches to solving problems, and the project manager may find innovative
solutions
easier to develop with a diverse project team.

Political

Every project operates within one or more communities that reflect organizational
dynamics and power struggles. The more important the project is to the
organizational
leadership, the more invested various organizational leaders will be in the
project. The
more people that become invested in the project and the more influence these people
exhibit on the resources and activities of the project, the more time and energy
will be
expended by the project team in managing these outside influences. This additional
stress
on project leadership time and resources adds complexity to the project.

Stakeholders and a Bridge Project

The Department of Highways chartered a project to upgrade a number of bridges that
crossed the interstate in one of the larger cities in South Carolina. The closing
of these
bridges severely impacted traffic congestion, including a large shopping mall. The
contract
included provisions for minimizing the impact on the traffic and communities near
the
construction areas. This provision allowed businesses or interested parties to
review the
project schedule and make suggestions that would lessen the impact of the
construction.
The project leadership invested significant time and resources in developing
alignment
among the various political stakeholders on the project approach and schedule.

Ecological

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Projects have the potential to impact the living conditions or the health of
people, plants,
and animals. In addition to the potential impact to land, water, and air, the
ecology includes
the sights and sounds that can impact the quality of life. An increasing number of
clients
expect the project team to minimize the impact of the project on the ecology. An
ecology
that is more sensitive to disruption and a more disruptive technology will place
greater
stress on the project and increase the project complexity. Construction projects
that
require the use of explosions to effectively move rocks and dirt, projects that
require the
addition of twenty-five people in existing office space, and projects that require
the release
of strong odors like those from adhesives in an office environment will all impact
the
ecology. The project team develops means and methods to minimize the impact of the
disruption in a manner consistent with the requirements as communicated by the
client.
The effort that is needed to minimize the ecological impact will influence the
complexity of
the project.
The ecology will also impact the execution of a project. The weather is an
attribute of most
construction projects. Construction projects in India are often scheduled around
the
monsoon season, and construction projects in the Caribbean consider the hurricane
season.
A project to build an offshore wind farm will require an understanding of the ocean
currents, the wind currents, and temperature fluctuation to understand the impact
of the
ecology on the project execution plan.
The larger the number of potential ecological attributes and the greater the impact
of each
attribute, the greater the influence on the project complexity.

KEY TAKEAWAYS
 The external attributes are the relative size of the project, duration of
the project,
and the available resources.
 The internal attributes are the clarity of its scope, the complexity of the
organization, and the agreement among stakeholders.

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 The technological attributes are the technology of the product (not the
technology
used to manage the project), the newness of the technology, and the
familiarity of the
team with the technology.
 The environmental attributes are the legal issues, cultural conflicts,
political
interests, the impact of the project on the ecology, and the impact of the
ecology on
the project.

EXERCISES
1. The external attributes considered in the DPCI are relative size,
________, and
available resources.
2. The internal attributes considered in the DPCI are clarity of scope,
complexity of
the organization, and agreement among _________.
3. The technological attributes considered in the DPCI are ______ of the
technology
and familiarity of the team with the technology.
4. The environmental attributes considered in the DPCI are _____, cultural,
political,
impact on the ecology, and impact of the ecology on the project.
5. Under what circumstances would a large project qualify for a low DPCI
score?
6. Describe an organization structure that would receive a high score for
complexity.
7. Does the technology attribute refer to the technology used by the project
team or
the project itself?
8. Give an example of a cultural problem that would have a high-complexity
score.
9. Give an example of an ecological problem that would have a high-complexity
score.
10. What is the difference between an external and an internal attribute in
the DPCI?

Behind the Scenes

Stanley Portny [1] advocates that as a project manager, you research the

source of a
project to determine who had the original idea by asking questions of your
boss,
reading meeting minutes and feasibility studies, and checking other
correspondence

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 and contacts. The purpose of this investigation is to find out who is most
likely to
champion the project if you have trouble, who opposed the project, or whose
interests will be harmed by the project. Consider this advice in light of the
Darnall-
Preston Complexity Index and answer the following questions:

 Is this an external, internal, technological or environmental attribute?

Explain your
reasoning and refer to the definitions provided. A case can be made for
putting it in
more than one.
 What might you find that would increase the project’s complexity and what
might
you find out that would reduce the complexity? Provide examples of each.

[1] Stanley E. Portny, Project Management for Dummies, 2nd ed. (Hoboken, NJ: Wiley,
2007).

2.5 Exercises
Exercises at the end of the chapter are designed to strengthen your understanding
and
retention of the information recently acquired in the chapter.

ESSAY QUESTIONS
Write several paragraphs to provide more in-depth analysis and consideration
when
answering the following questions.

1. Compare the attributes used by the Darnall-Preston Complexity Index and

those
used by Youker. Which attributes are used in both typologies? Which attributes
are
not in common? If you chose to add one attribute to either typology what would
it be?
Explain your answer.
2. Complex systems. A complex system adapts to changes in its external and
internal
characteristics. Describe a project with which you are familiar that has
experienced
changes in its external or internal characteristics during the life of the
project and

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 describe how the project manager and the management team changed their
behavior
to adapt to the new situation or how they failed to adapt and the result of
that failure.
3.
DISCUSSION
The exercises in this section are designed to promote exchange of information
among
students in the classroom or in an online discussion. The exercises are more
open
ended, which means that what you find might be completely different from what
your
classmates find, and you can all benefit by sharing what you have learned.

1. Institutional memory. One of the responsibilities of a project manager is

to keep a
history of past projects to create an organizational knowledge base. Do you
think
using the DPCI™ as a basis for organizing those past projects would be useful?
How
would you go about creating a storage and retrieval system that uses the DPCI?
2. Environmental impact. Describe a project that might have an impact on the
environment and the steps the project manager might have to take. Describe the
score you would give this attribute if you were using the DPCI.

Chapter 3
Project Phases and Organization

This chapter provides an overview of the organizational structure and phases of a

project.
The complexity level of a project influences the organizational structure and the
resources

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and skills needed at each phase. This chapter also provides an overview of the
typical
functions within the organizational structure of a project.

3.1 Project Phases
LEARNING OBJECTIVES
1. Identify the phases of a project.
2. Describe the types of activities in each phase of a project.

Projects, by definition, have a beginning and an end. They also have defined phases
between the project kickoff and project closeout. A phase represents a grouping of
similar
activities that has a very loosely defined beginning and end. Phases are also
typically
sequential, where the prior phase is essentially complete before the beginning of
the next
phase. Phases do not have clear-cut end dates and some activities in an early phase
of the
project will continue into the later phases. This is in contrast to project
beginning and
ending dates and milestone dates, which do have clearly defined dates with the
expectation
that these dates will be met.

Initiation

The initiation phase of a project represents the activities associated with

starting up the
project. Activities during the initiation phase include project kickoff meetings,
identifying
the project team, developing the resources needed to develop the project plan, and
identifying and acquiring the project management infrastructure (space, computers).
On
projects where the scope of work for the project is not well defined, the project
team will
invest time and resources in developing a clearer scope of work. On projects where
the
major project stakeholders are not aligned, the project team will expend resources
and
time creating stakeholder alignment.

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The activities that occur within the initiation phase of the project vary on each
project.
They include all the activities necessary to begin planning the project. The
initiation phase
typically begins with the assignment of the project manager and ends when the
project
team has sufficient information to begin developing a detailed schedule and budget.
Unlike
project milestones, some activities associated with project initiation may be
delayed
without delaying the end of the project. For example, it is advantageous for the
project to
have the major project stakeholders aligned from the beginning, but sometimes it is
difficult to get the commitment from stakeholders to invest the time and resources
to
engage in an alignment process. Sometimes it is only after stakeholders begin
observing
progress on a project that the project manager can facilitate the stakeholder
alignment
processes.

The knowledge, skills, and experience needed on the project can vary in each phase.
During
the early phases of a project, the project leadership needs good conceptual skills,
the ability
to build a team, and the experience to build a project roadmap. During project
closeout, the
project leadership provides a high degree of motivation and attention to details.
On a large
project, lasting two or more years, it is common to see the project management team
change leadership to provide skills that are appropriate to the final phases of the
project.

The Project Management Institute [1] identifies four major phases of a project as

characteristics of the project life cycle. These four life-cycle phases are
initiation, planning,
execution, and project closeout. The initiation phase, which PMI labels “starting
the
project,” includes all the activities necessary to start the project. These
activities include
holding the project kickoff meeting, confirming or developing conceptual schedules
and
budgets, and acquiring project execution resources such as office space, computers,
and
communications equipment.

Planning
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The planning phase, which PMI labels “organizing and preparing,” includes the
development of more detailed schedules and a budget. The planning also includes
developing detailed staffing, procurement, and project controls plans. The emphasis
of the
planning phase is to develop an understanding of how the project will be executed
and a
plan for acquiring the resources needed to execute it. Although much of the
planning
activity takes place during the planning phase, the project plan will continue to
be adjusted
to respond to new challenges and opportunities. Planning activities occur during
the entire
life of the project.

Execution
The execution phase, labeled by PMI as “carrying out the work,” includes the major
activities needed to accomplish the work of the project. On a construction project,
this
would include the design and construction activities. On an information technology
(IT)
project, this would include the development of the software code. On a training
project, this
would include the development and delivery of the training.

Closeout

The closeout phase—or using PMI’s nomenclature, “closing of the project”—represents

the
final stage of a project. Project staff is transferred off the project, project
documents are
archived, and the final few items or punch list is completed. The project client
takes control
of the product of the project, and the project office is closed down.
The amount of resources and the skills needed to implement each phase of the
project
depends on the project profile. Typically, a project with a higher-complexity
profile
requires more skills and resources during the initiation phase. Projects with a
profile that
indicates problems with alignment among key stakeholders or political and legal
issues will
require specialized resources to develop plans that address these issues early in
the

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project. A project with a lower complexity level will invest more resources in the
execution
phases to execute the project as effectively and efficiently as possible.

Project Phases on a Large Multinational Project

A United States Construction company won a contract to design and build the first
copper
mine in northern Argentina. There was no existing infrastructure for either the
mining
industry or large construction projects in this part of South America. During the
initiation
phase of the project, the project manager focused on defining and finding a project
leadership team with the knowledge, skills, and experience to manage a large
complex
project in a remote area of the globe. The project team set up three offices. One
was in
Chile, where large mining construction project infrastructure existed. The other
two were
in Argentina. One was in Buenos Aries to establish relationships and Argentinean
expertise,
and the second was in Catamarca—the largest town close to the mine site. With
offices in
place, the project start-up team began developing procedures for getting work done,
acquiring the appropriate permits, and developing relationships with Chilean and
Argentine partners.

During the planning phase, the project team developed an integrated project
schedule that
coordinated the activities of the design, procurement, and construction teams. The
project
controls team also developed a detailed budget that enabled the project team to
track
project expenditures against the expected expenses. The project design team built
on the
conceptual design and developed detailed drawings for use by the procurement team.
The
procurement team used the drawings to begin ordering equipment and materials for
the
construction team; to develop labor projections; to refine the construction
schedule; and to
set up the construction site. Although planning is a never-ending process on a
project, the
planning phase focused on developing sufficient details to allow various parts of
the project
team to coordinate their work and to allow the project management team to make
priority
decisions.

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The execution phase represents the work done to meet the requirements of the scope
of
work and fulfill the charter. During the execution phase, the project team
accomplished the
work defined in the plan and made adjustments when the project factors changed.
Equipment and materials were delivered to the work site, labor was hired and
trained, a
construction site was built, and all the construction activities, from the arrival
of the first
dozer to the installation of the final light switch, were accomplished.

The closeout phase included turning over the newly constructed plant to the
operations
team of the client. A punch list of a few remaining construction items was
developed and
those items completed. The office in Catamarca was closed, the office in Buenos
Aries
archived all the project documents, and the Chilean office was already working on
the next
project. The accounting books were reconciled and closed, final reports written and
distributed, and the project manager started on a new project.

KEY TAKEAWAYS
 The phases of a project are initiation, planning, execution, and closeout.
 The initiation phase, which PMI calls “starting the project,” includes
activities such
as holding alignment and kickoff meetings, identifying the project team,
developing
the resources needed to develop the project plan, and identifying and acquiring
the
project management infrastructure.
 The planning phase, which PMI calls “organizing and preparing,” includes
developing detailed staffing, procurement, and project controls plans.
 The execution phase, which PMI calls “carrying out the work,” includes the
major
activities needed to accomplish the work of the project.
 The closeout phase, which PMI calls “closing of the project,” includes
transferring
staff, archiving documents, closing offices, completing punch list tasks, and
turning
over the results of the project to the client.

EXERCISES

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1. Completing the items on a punch list occurs during the _________ phase.
2. The ______ phase includes start-up activities and is called “starting the
project” by
PMI.
3. The phase in which the project work is mainly accomplished is the _______
phase.
4. How does the initiation phase differ from the planning phase?
5. What is a punch list and in which phase is it used?
6. What are the four phases of a project?

Project Phases

Consider a personal project that you have been involved with in the last few
years,
such as moving your residence, buying a car, or changing jobs. Describe the
activities
related to that project that fit into each of the four project phases.

[1] Project Management Institute, Inc., A Guide to the Project Management Body of

Knowledge
(PMBOK Guide), 4th ed. (Newtown Square, PA: Project Management Institute, Inc.,
2008), 11–
16.

3.2 Project Organization
LEARNING OBJECTIVES
1. Identify the various functions represented on a project.
2. Analyze and evaluate the influence of organizational structure on project
functions.
3. Design a project organizational chart for various project complexity
profiles.

There is no single organizational approach to projects. Each project is organized

to
accomplish the work effectively and efficiently. Several factors influence the
organizational
approach to execute a project. The complexity profile of a project, the culture of
the parent
organization, the preferences of the project manager, the knowledge and skills of
the team,

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and a parent organization with a project management office are examples of factors
that
influence the project’s organization.

In developing the project organizational structure, the project manager considers

thespan of control for each manager. The span of control represents the number of
people
reporting to a manager. For example, the project manager does not want all the
engineers
on a project reporting to the engineering manager and assigns senior engineers to
report to
the engineering manager with other engineers reporting to the senior engineers.

The engineering manager can organize the engineering reporting structure so that
the
various engineering discipline managers would report to him or her. For example,
the
structural, electrical, and mechanical engineering team leaders would report to the
engineer manager. On a larger, more complex project, the engineer manager may
establish
area team leaders and have the structural, electrical, and mechanical engineers
report to an
area team leader. If the project is geographically dispersed, with the engineering
office staff
in different cities working on the project, then structuring the engineering
function by area
provides better coordination and control (see Figure 3.1 "Decreasing Span of
Control by
Increasing Levels of Reporting").

Figure 3.1 Decreasing Span of Control by Increasing Levels of Reporting

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 The organization on the left has seventy-one engineers reporting to the same
person. The
organization on the right creates two additional positions and reduces the span
of control
to thirty-seven and thirty-four, respectively.

Most projects have similar functions that are important to successfully

managing the
project. Included among these are the following:

 Sponsor
 Project manager
 Controls
 Procurement
 Technical management
 Quality
 Administration

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Figure 3.2 Typical Project Organization

On smaller projects, more than one function can be managed by one person. On larger
projects, large teams may be needed to accomplish the work within the function.

Project Sponsor

The project sponsor is outside the day-to-day operations of the project and has the
organizational authority to provide resources and overcome barriers for the
project. The
project sponsor is typically a leader in the parent organization with an interest
in the
outcome of the project. As a leader in the parent organization, the project sponsor
can
provide input into the project scope and other documents that define project
success. The
guidance and support from the project sponsor enhances the ability of the project
to
successfully meet the parent organization’s objectives.

Southern Training Center Organization

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A training organization in South Carolina assigned a project sponsor to every
project. For
smaller projects, the regional manager fulfilled the role of project sponsor. On
larger, more
complex projects, the operations manager was the project sponsor. The vice
president was
the project sponsor of the three or four most complex projects, and the president
was the
project sponsor only on projects with a high degree of political risk. This
approach to
assigning project sponsors assured that each project had an organizational advocate
that
could address barriers and provide direction and resources. The project sponsor, in
this
organization, developed a relationship with a senior representative of the client
organization, reviewed monthly reports, and conducted thorough quarterly reviews.

Project Manager

Project managers often have the breadth of responsibility associated with corporate
chief
executive officers (CEOs). The project manager facilitates the start-up of a
project and
develops the staff, resources, and work processes to accomplish the work of the
project. He
or she manages the project effectively and efficiently and oversees the closeout
phase.
Some projects are larger than major divisions of some organizations, with the
project
manager responsible for a larger budget and managing more risk than most of the
organizational leaders. A mining company that builds a new mine in South Africa, an
automobile manufacturer that creates a new truck design, and a pharmaceutical
company
that moves a new drug from testing to production are examples of projects that may
consume more resources in a given year than any of the organization’s operating
divisions.

The function of the project manager can vary depending on the complexity profile
and the
organizational structure. Defining and managing client expectations and start-up
activities,
developing the scope, and managing change are functions of the project manager. On
some
projects, the project manager may provide direction to the technical team on the
project.
On other projects, the technical leadership might come from the technical division
of the
parent organization.

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 Although the functional responsibilities of the project manager may vary, the
primary role
is consistent on every project. The primary role of the project manager is to
lead, to provide
a vision of success, to connect everyone involved in the project to that
vision, and to
provide the means and methods to achieve success. The project manager creates a
goal-
directed and time-focused project culture. The project manager provides
leadership.

Project Control

In general, project controls is both the planning function and the function

that tracks
progress against the plan. Project control provides critical information to all
the other
functions of the project and works closely with the project manager to evaluate
the cost
and scheduling impact of various options during the life of a project.

Sometimes accounting functions such as payroll, budgeting, and cash management

are
included within project controls. On larger projects, accounting functions are
typically
separate because the accounting culture tracks expenses to the nearest penny,
and cost
estimating and tracking by project controls can often be off by hundreds and
sometimes
thousands of dollars. The lack of definitive information necessitates the
development of
cost estimates within ranges that are often inconsistent with accounting
practices.
Separating these two functions allows each to operate within their own accuracy
comfort
zone. The following are typical activities included within the project controls
function:

 Estimating
 Tracking costs
 Analyzing trends and making projections
 Planning and scheduling
 Managing change
 Tracking progress against schedule

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The project controls team gathers this information from all the functions on the
project and
develops reports that enable each functional manager to understand the project plan
and
progress against the plan at both the project level and the functional level. On
large
complex projects, some project managers will assign project controls professionals
to work
within the major functions as well as the project management office. This approach
allows
each function to plan and track the function’s work in more detail. The project
controls
manager then coordinates activities across functions.

Project Procurement

The approach to purchasing the supplies and equipment needed by the project is
related to
the complexity profile of the project. A small project with a low complexity level
may be
able to use the procurement services of the parent organization. In an organization
where
project resources reside in various departments, the departments may provide the
supplies
and equipment each team member of the project may need.

Southern College Procurement Organization

A college in South Carolina chartered a number of projects to increase the energy
efficiency
of the college. The project team included members from various college departments.
Each
department paid for the time, travel expenses, and supplies needed by the team
member
from their department. Each team member continued to use the computers and
administrative support in their department for project work. The costs for this
support was
not included in the project budget nor tracked as a project expense. Equipment
purchased
by the project that was installed to reduce the energy consumption of the college
was
purchased through the college procurement department and charged to the project.

More complex projects with greater procurement activity may have a procurement
person
assigned to the project. This same South Carolina college retrofitted a warehouse
to create

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a new training center for industry. A procurement person was assigned to the
project to
manage the contract with the construction firm remodeling the space, the purchase
and
installation of the new training equipment, and the purchase of the supplies needed
by the
project team. All the procurement activity was charged to the project. The
procurement
person reported to the project manager for better communication on what the project
needed and when it needed it. The procurement person participated as a member of
the
project team to understand and provide input into the costs and scheduling
decisions. The
procurement person reported to the college procurement manager for developing and
implementing project procurement processes that met college procurement policies
and
procedures.

Figure 3.3

The procurement manager is part of the project team.

On larger, more complex projects, the procurement team has several

responsibilities. The
team is responsible for procuring the supplies and equipment (such as office
supplies and
computers) needed for the project team and the supplies and equipment (such as the
training equipment) needed to execute the project. On a typical construction
project, the
procurement team would rent a construction trailer, office supplies, and computers
for the
project team to establish a construction office at the construction site. The
procurement

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team would also purchase the concrete, rebar, steel, and other material needed to
construct
the building.

Procurement for Mining Project in South America

On the large mining project in South America, during the initiation phase of the
project, the
procurement department arranged for office space and supplies for the engineering
teams
in Canada, Chile, and Argentina and construction offices at the construction site
in
Argentina. As the design and engineering progressed, the procurement team managed
bids
for the major equipment and bids for the preparation of the construction site. The
procurement team managed the logistics associated with transporting large equipment
from Europe, North America, and Asia to the job site in rural Argentina. After the
completion of the project, the procurement team managed the deposal of project
property.

On large, complex projects, the procurement team manages at least three types of
relationships with companies doing business with the project.

Commodity Procurement

The largest number of purchased items for most projects are commodity items.
Commodities are items that can be bought off the shelf with no special modification
for the
project. These items are typically bid and the lowest prices that can meet the
schedule of
the project will win the contract. The procurement team assures the company that
wins the
bid can perform to the contact specifications and then monitors the progress of the
company in meeting the projects requirements. Concrete for the project and the
cranes
leased to the project are examples of commodities. The key to success in managing
commodity suppliers is the process for developing the bids and evaluating and
awarding
the contracts.

Procurement from Vendors

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The second type of relationship is the vendor relationship. The terms supplier and
vendor
are often used interchangeably. In this text, suppliers provide commodities, and
vendors
provide custom services or goods. Suppliers bid on specialized equipment for the
project.
Engineers will specify the performance requirements of the equipment, and suppliers
that
have equipment that meets the requirements will bid on the project. The engineering
team
will assist in the evaluation of the bids to assure compliance with specifications.
The lowest
bid may not win the contract. Sometimes the long-term maintenance costs and
reliability of
the equipment may indicate a high price for the equipment. The key to success is
the
development of clear performance specifications, good communication with potential
bidders to allow bidders to develop innovative concepts for meeting the performance
requirements, and a bidding process that focuses on the goals of the project.

Partnerships

The third type of project procurement relationship is the partnership. Sometimes

the
partnership is legally defined as a partnership, and sometimes the success of each
partner
is so closely tied together that the relationship operates as a partnership. On the
South
American project, the project team partnered with an Argentinean construction
company
to access the local construction practices and relationship with local vendors.
This was a
legal partnership with shared profits. The partner also designed and procured some
large
mining equipment on which the success of the project and the company building the
mining equipment depended. With this type of relationship, a senior manager on the
project is assigned to coordinate activities with the partner, and processes are
put in place
to develop shared goals, align work processes, and manage change.

Figure 3.4 Procurement Manager Relationships

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Technical Management

The technical management on the project is the management of the technology

inherent in
the project—not the technology used by the team to manage the project. The
technical
complexity on a project can vary significantly. The technological challenges
required to
build a bridge to span a five-hundred-meter canyon are significantly different from
those
required to span a five-thousand-meter body of water. The technological complexity
of the
project will influence the organizational approach to the project. The
technological
complexity for a project reflects two aspects: the newness of the technology and
the team’s
familiarity with the technology. The newness refers to the degree to which the
technology
has been accepted in the industry. The more accepted the technology is in the
industry
usually means that more knowledge and experience will be available to the team.
Familiarity refers to the experience the project team has with the technology. The
less
familiarity the team has with the technology, the more energy and resources the
team will

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expend on managing the technological aspect of the project. For projects with high
levels of
project technology, a specialist may be hired to advise the technology manager.

Indiana Steel Company

A steel company in Indiana purchased a new coal injection technology that would
improve
the quality of steel, reduce the cost to produce the steel, and reduce air and
water pollution.
The contract to design and construct the new plant was awarded to an engineering
and
construction company. No one on the engineering and construction team had
experience
with the coal injection technology. The client’s team understood the technology and
provided guidance to both the project engineering and construction teams. The
client
owned the coal injection technology, and the engineering and construction team
brought
the project management technology.

Project Quality
Project quality is often part of the technical manager’s responsibility. On large
projects or
projects with a high degree of technical complexity, the quality is sometimes a
separate
function reporting to the project manager. The project quality manager focuses on
the
quality of the project work processes and not the quality of the client’s product.
For
example, if the project is to design and construct an automobile factory, the
quality
manager focuses on the project work processes and meeting the technical
specification of
the equipment installed by the project team.

The project quality manager is not responsible for the quality of the car the plant
produces.
If the plant functions to the defined project specifications, the quality of the
plant output is
the responsibility of the plant quality department, and it may take several months
for the
plant to refine the work processes to meet the design specifications of the car.
On a construction project, the quality manager may test steel welders to assure the
welders
have the skills and that the welds meet project specifications. On a training
project, the

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 quality manager may review the training curriculum and the qualification of the
instructors
to assure the training provides the knowledge and skills specified by the
client. On a drug
development project, the quality manager may develop processes to assure the
water and
other raw material meet specifications and every process in the development
process is
properly documented.

Project Administration

The administrative function provides project specific support such as the

following:
 Accounting services
 Legal services
 Property management
 Human resources (HR) management
 Other support functions found in most organizations

In most organizations, support for these functions is provided by the parent

organization.
For example, people assigned to the project will get human resources (HR)
support from
the HR department of the parent organization. Salary, benefits, and HR policies
for
employees assigned to the project will be supported out of the HR department.
The parent
organization will provide accounting functions such as determining the cost of
cash, taxes,
year-end project reports, and property disposal at the end of the project.

The project manager on smaller, less complex projects will have sufficient
knowledge about
these issues to coordinate with the parent organization’s functional leaders.
On more
complex projects, the project may have an administrative manager responsible
for
coordinating the administrative functions of the projects. On larger, more
complex projects,
an administrative function may be established as part of the project team, with
many of the
functions assigning a resource to the project. In all cases, the administrative
function on a

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project is closely related to the legal and organizational responsibilities of the
parent
organization and close coordination is important.

South American Mining Project

The South American mine project has major design work to accomplish in three
different
design offices: Vancouver, Santiago, and Argentina. The project manager and the
leadership
team reside in Santiago, Chile. During the design stage of the project, the
engineering
manager in each engineering office is leading the work with project controls,
procurement,
and administration, each assigning resources to support the engineering activities
at each
location. The project engineer manager assigned the engineering work based on the
capabilities of the office and coordinates the work between offices. The
procurement,
project controls, and administrative leaders assign resources to support the work
in each
office. For example, the project controls manager assigned a planner in each office
to
support the engineering manager in that office to develop and track the schedule.
The
project planner in Vancouver supports the development of the engineering schedule
in
Vancouver and communicates and coordinates with the planning activities in the
other
locations
When the project construction activities started, project controls, procurement,
and
administrative resources moved from supporting engineering to supporting the
construction activity. The project organizational structure changed as the
engineering
manager and the engineering effort changed from primarily designing the project to
supporting the construction effort, by answering construction questions and
developing
solutions to construction challenges. The procurement effort changes from managing
the
bidding and contracting activities to managing the logistics.

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Figure 3.5 Organization for Major International Project

KEY TAKEAWAYS
 Key functions on a project include sponsor, project manager, controls,
procurement, technical, quality, and administration.
 The project sponsor has the organizational authority to provide guidance
and
resources and can overcome barriers for the project.
 The project manager is the project leader with broad responsibilities for
all phases
of the project and for meeting project goals and client expectations.
 The project controls manager is responsible for controlling the project
processes,
including cost estimating and tracking, developing schedules, tracking progress
against
schedules, managing changes to the schedule or budget, and analyzing trends.

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 The procurement manager is responsible for obtaining the services and
materials
needed to complete the project. This is accomplished by purchasing
commodities,
managing contractors who provide services and products, and working with
partners.
 The technical manager deals with the issues related to the technology of
the
project.
 The quality manager monitors the project’s processes—not the quality of the
product of the project—and takes steps to assure they are done correctly and
meet
specifications.
 Project administration manages accounting, legal, property, and human
resources.

EXERCISES
1. Materials or services whose quality is standardized and that are usually
purchased
based on lowest price are __________.
2. Major components of a project that are specialized and that require the
provider
to help with solving problems and share in the profits are provided by
____________
3. Worker benefits would be managed by the ________ function.
4. Tracking costs and comparing them to the project budget is handled by the
___________ function.
5. Buying concrete for a bridge project would be handled by the __________
function.
6. Checking to see that the work performed on the project is done consistently
and
up to specifications is managed by the ________ function.
7. The number of people who report to a manager is referred to as the _____ __
______ (three words).
8. If employees are responsible for estimating costs, to whom would they
report?
9. Refer to Figure 3.1 "Decreasing Span of Control by Increasing Levels of
Reporting".
How many additional employees were added to decrease the span of control of
the
engineering manager, and how was this accomplished?

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10. Refer to Figure 3.4 "Procurement Manager Relationships". How do
partnerships
affect the complexity of the project? Describe an example of a situation
where the
partnership could affect the complexity of the project.
11. How is procurement from suppliers different from buying commodities?
12. Refer to Figure 3.3. To whom does the procurement manager report? Provide
an
example of a situation where this reporting relationship might increase the
complexity
of the project.

Project Organization

Refer to the descriptions of the project functions and determine which

manager
would take care of each of the following problems. If you think the problem
requires
the attention of more than one function, explain why.

1. One of the project team members has filed a sexual harassment suit against
another team member of equal rank. ___________
2. A contractor is installing equipment that is substandard. ___________
3. The computer software used to make a step improvement in the client’s
operations has a significant bug in it. ___________
4. The client wants to use higher-quality materials in the project than was
originally
agreed on. ___________
5. Your organization has announced budget cuts but you cannot afford to lose
anyone
at this crucial stage in the project. ___________
6. A contractor has complained that the procurement manager has a conflict of
interest with a competing contractor. ___________

3.3 Using the Darnall-Preston Complexity Index to

Measure Organizational Complexity

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 LEARNING OBJECTIVE
1. Analyze a project function for size, organizational complexity,
technological
newness, and technological familiarity and assign a complexity score.

Recall that the Darnall-Preston Complexity Index (DPCI™) ranks complexity in

four
categories: external, internal, technological, and environmental. The
information provided
in this chapter can be used to rate a project’s complexity in the areas of
size, organizational
complexity, technological newness, and technology familiarity. Scores range
from 1 (least
complex) to 5 (most complex).

Size

Recall that size is relative to the organization’s comfort zone for projects.
Refer to the
following descriptions for tips on arriving at a DPCI score for size:

1. The project size is the most common size the organization does. The
project
manager and team members have done many similarly sized projects, and the
tools they
use to manage this size project are well tested and reliable.
2. The project size is at the high or low end of the range of project
sizes that the
organization or team members have done before.
3. The project size is about 20 percent higher or lower than projects the
organization
or some of the team members have done before. The project leader and a few key
team
leaders are familiar with this size project from work they have done
elsewhere. Project
management tools and processes will have to be adjusted but will probably
work.
4. The project size is about 50 percent higher or lower than projects the
organization
or most of the team members have done before. Project management tools and
processes
will have to be adjusted, and it is not certain that they will work well. New
tools and
procedures may be needed.

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5. Neither the organization nor the team members are experienced working
on a
project this size. It is several times larger or smaller than previous
projects. It is too small
or too large for the tools and techniques with which the team is familiar.

Organizational Complexity

Recall that system complexity is determined by the variety of types of

elements and the
number of connections there are between elements. Review a chart of the
organizational
structure that depicts the reporting relationships, the number of people
involved, their
familiarity with each other, and the amount of cross connections between
reporting
relationships and functions. Refer to the following descriptions for tips on
arriving at a
DPCI score for size:
1. The organizational structure is simple and involves few people. No new
relationships need to be formed, and the people have worked together in these
relationships before.
2. The team includes people who report to operations managers instead of
the project
manager, and more people are involved.
3. The organization chart has numerous segments, but most people are
familiar with
their roles and have worked in this type of role before.
4. The number of people involved is large, and the functions are handled
by many
different people. There are several levels of reporting in the organization
chart.
5. The number of people is very large, and many of them do not know each
other or
have never met. Each major function requires a full-time person, and
coordinating between
functions requires frequent meetings among mid- and top-level managers.

Technology Newness

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 Recall that this category refers to the technology that is part of the
project. It might be new
technology that is being implemented to make a step change in the efficiency
of an
operation. Refer to the following descriptions for tips on arriving at a DPCI
score for size:

1. The technology is not new. It has been around for years and is
reliable.
2. The technology is only a few years old. Most of the initial bugs are
out of it, but the
fixes have not been thoroughly tested.
3. The technology is recent, and only a few other organizations have
experience with it.
The providers promise that the next release or version will have the problems
resolved.
4. The technology is new and has just been released for general use.
Problems are
likely.
5. The technology is in an early testing phase, and your organization
is one of the test
sites. Problems are expected.

Technology Familiarity

Recall that this category refers to the familiarity of the project team with
the technology
that is part of the project. Refer to the following descriptions for tips on
arriving at a DPCI
score for size:

1. The team members have all used the technology or have been involved
with projects
that used this technology. They are confident that they understand it and can
handle
problems related to it.
2. The technology is new to some of the team members who are not in key
positions.
Standardized training is available, if necessary, to teach them what they need
to know
about it to do their jobs.
3. Several team members have not worked with this technology, including
some of the
key team members. Standardized training is not available, and consultants
might be
needed.

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4. The technology is new but is similar to previous technologies with
which the team
leaders are familiar. An advisor from the product’s development team may serve
as a
technology advisor.
5. The technology is new, and no one has worked with it before. A
specialist might be
needed to avoid serious errors.

Tips for Assigning a Score

Assigning a score is not an absolutely accurate process. Your objective is to

be
approximately correct, and some people are not comfortable with this type of
estimate.
Recall that one of the attributes of a successful project manager is the
ability to live with
ambiguity. One method that will help when assigning a score is to consider the
two
extremes. For each factor in the DPCI, consider what the simplest—least
complex—
scenario would look like, which would be a 1 on the DPCI scale. Next consider
what the
most complex scenario would be, which would describe a 5. Then, compare actual
projects
to those two extremes. If it is close to, but not as simple as, the least
complex, you would
give it a 2. If it is close to, but not as complex as, the most complex
scenario you would give
it a 4. If it is about in the middle, it rates a 3.

KEY TAKEAWAY
 Scores range from 1 to 5, where 1 is the lowest level of complexity
and 5 is the
highest. In each situation, consider what the two extremes would look
like and then
judge where the current situation lies between those extremes.

EXERCISES
1. If a project is about 20 percent larger or smaller than projects
previously done by
most of the team members, it should be rated as a ____ for size
complexity.

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2. If the organizational structure is simple and involves few people and no
new
relationships need to be formed, the project rating for organizational
complexity
should be a ___.
3. If the technology is in an early testing phase, your organization is one of
the test
sites, and problems are expected, the technology newness complexity rating
should
be a ______.
4. If the technology is new to some of the team members who are not in key
positions, but standardized training is available to teach them what they need
to know
about it to do their jobs, the technology familiarity complexity rating should
be a ____.
5. Why does the newness of a project’s technology increase its complexity?
6. The project controls manager decides to change the software his team uses
to
track project activities from Microsoft Project to Primavera. Few of the staff
in that
department are familiar with Primavera. How would this change affect the
project
technology complexity index score? Explain your answer.

Techniques for Assigning Scores

Refer to the tips for assigning scores to answer the following questions:

1. How does the ability to live with ambiguity relate to assigning scores
using the
DPCI? ___________

2. How does considering extremes help to assign a score? ___________

Choosing a Complexity Score

Consider a project that involves the merger of computer systems of two banks.
The
acquiring bank wants to convert the other bank’s computer system to its own
software, and the project is to convert all the client account files. The
software used

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 by the acquiring bank is relatively new, and only about a third of the project
team is
familiar with it. Your task is to determine a DPCI rating for the familiarity
of the project
team with the technology.

1. Describe a scenario that would qualify for a rating of 1.

2. Describe a scenario that would qualify for a rating of 5.
3. Indicate the rating you would choose and explain your choice.

3.4 Exercises
Exercises at the end of the chapter are designed to strengthen your understanding
and
retention of the information recently acquired in the chapter.

ESSAY QUESTIONS
Write several paragraphs to provide more in-depth analysis and consideration
when
answering the following questions.

1. In June 2009, the CEO of Fiat took on the management of Chrysler and began
a
project with the objective of joining the two companies. He chose to “flatten”
the
management organization by increasing the number of people who report to him
from
a “handful” to twenty-three. Video conferences between the Chrysler and Fiat
management teams take place from a conference room in Chrysler headquarters in
Michigan where there are twenty-three seats and microphones for the Chrysler
team
members. [1] What do you think are the pros and cons of changing the CEO’s
span of
control in this manner? Will this increase or decrease the complexity of the
organization? Your answer should display an understanding of span of control
and
organizational complexity.
2. The DPCI™ and the Myers-Briggs Type Indicator® (MBTI): The human
personality is
more complex than a project; an evaluation system developed by Isabel Myers-
Briggs

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 based on the work of psychologist Carl Jung attempts to provide a simple
profile based
on four ranges of personality traits: introverted versus extroverted,
intuitive versus
sensing, thinking versus feeling, and judging versus perceiving. How does the
Myers-
Briggs profile compare and contrast with using the DPCI to determine the
strengths
and challenges of a project?

DISCUSSION
The exercises in this section are designed to promote an exchange of
information
among students in the classroom or in an online discussion. The exercises are
more
open ended, which means that what you find might be completely different from
what
your classmates find, and you can all benefit by sharing what you have
learned.

1. Controls and procurement. Under what circumstances would the

responsibilities of
the controls manager and the procurement manager overlap? Describe the
situation.
Your description should indicate an understanding of the roles and duties of
each
manager. Consider the examples provided by your classmates and compare them
with
your example to determine if you correctly understand these two roles.
2. Describe the four phases of a project in your own words. Pick a project
that would
have a score of 1 on the DCPI in the areas of size, organizational complexity,
technology newness, and technology familiarity. Consider the examples provided
by
your classmates and compare them with your example to determine if you
correctly
understand how to score a project’s complexity in these areas.

[1] Neal E. Boudette, “Fiat CEO Sets New Tone at Chrysler,” Wall Street Journal,
June 19,
2009,http://online.wsj.com/article/SB124537403628329989.html (accessed June 21,
2009).

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 Chapter 4
Understanding and Meeting Client Expectations

Project management is about managing work processes and leading people. The
technical
skills of a project manager—the ability to organize the project and develop a
scope, budget,
and schedule—are critical to executing a project that will finish on time, within
budget, and
to the project specifications. However, the project will not be a success if the
important
stakeholders are unhappy with the results.

Project stakeholders often have a significant role in the success of a project. The
ability of
the project manager to understand the expectations of the various stakeholders and
motivate them to contribute to the project success is a major aspect of the project
manager’s leadership role. In this chapter, we explore the concepts and skills
needed by the

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project manager to understand and meet the expectations of the one of the most
important
stakeholders—the client—and the various means and methods for motivating the client
to
contribute to project success.

One of the definitions of project success focuses on achieving client satisfaction.

This
definition highlights the importance of the client as critical for both defining
and achieving
project success. The client is an important project constituent and in most cases
the most
important constituent. Darnall [1] described actions for the project manger focused
on
defining and meeting client expectations. Project success often includes meeting
project
goals and specifications, and it also includes understanding and meeting the
expectations of
the client. Depending on the complexity level of the project, the plan to meet the
client’s
expectations can range from having a general discussion with the project leadership
team
to developing a formal plan that is tracked during the life of the project.

[1] Russell W. Darnall, The World’s Greatest Project (Newtown Square, PA: Project

Management
Institute, Inc., 1996), 48–55.

4.1 Including the Client

LEARNING OBJECTIVES
1. Describe what the client needs to know about changes in management style
during
different phases of a project.
2. Identify advantages and disadvantages of including the client on project
teams.

To appreciate the skill and effort expended by the project team in achieving the
objectives
of the project, the client needs to know more about what the team does.

Educate the Client from the Beginning

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Often the client does not have the project management experience of the project
manager
or project team. An experienced project manager understands the phases of the
project and
the requirements of the different phases. A less experienced client may become
frustrated
at the changes in the management approach required for the different phases of the
project. For example, during the early phases, the project leadership is
encouraging
creative approaches to accomplishing the project goals. As the project proceeds and
the
project plan becomes more firm, the project leadership focuses on accomplishing the
project goals. The types of meetings, the agenda of the meetings, and the general
project
atmosphere change as the project moves from the planning phase to the production
mode
of the execution phase of the project.

During the last phases on a project, project team members are often tired and
beginning to
anticipate the transition that will take place at the end of the project. The
motivational
approach that worked during the early phases of the project is less effective
during the final
phases, and the project manager applies different approaches to motivating the
project
team. These changes can be disconcerting on a person’s first project. By explaining
what to
expect and planning with the client a process to minimize the impact of these
changes, the
project manager prepares the client for these events and reduces the frustration.

Include the Client on Selected Project Teams

The project client translates the needs of the organization through chartering the
project
and defining the project scope to the project manager and the project team. The
client also
has an oversight role. This oversight is often accomplished through regular project
reviews
and reports from the project team. Depending on the complexity level of the
project, the
reviews can vary significantly. On less complex projects, the review might be
conducted in
a one-hour meeting with a one-page summary document serving as the project progress
report. On more complex projects, a full-day meeting might be necessary for the
project
progress to be fully understood, and the project report may be one hundred pages or
more.

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In addition to providing the formal overview of the project, most clients would
like to
actively participate in the success of the project. This is a delicate balance. The
participation
of the client can have undue influence on project decisions. The advantage of
including the
client in project activities is to gain the client’s personal investment in the
project plan, to
create a better understanding for the client of the problems the project encounters
during
the life of the project, and to gain the insights and contributions of the client
in problem
solving.

Involving the client in teams where the client’s special knowledge can add value to
the
team discussions and activities contributes both to the success of the team and the
satisfaction of the client. During the construction of a chemical plant in
Tennessee, the
project team struggled with a very tight project schedule. A team was established
to
explore ways to reduce the approval process for the drawings of the plant design.
It was
taking two weeks for the design review, and even though this was within the normal
time
frame for design reviews, the project management team believed there were
opportunities
to reduce this time and shorten the length of the project.

The client’s engineering manager participated in the brainstorming sessions that

explored
ways to reduce the design review time. Several good ideas were developed and put
into
place. The client’s engineering manager took these ideas back to the client’s team
and
instituted many of the same ideas. The result was a shortened schedule that saved
two
weeks by the end of the plant design. The other result was a client that
contributed to the
project success and was emotionally engaged in the positive outcomes.

KEY TAKEAWAYS
 The project manager’s style changes with each phase of the project. The
client
could be surprised when the style changes from one that is open to any new idea
in
the initiation phase to a more task-oriented style during execution or a more
demanding style during closeout.

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 Client participation in project teams can have undue influence on
decisions, but
this is offset by the buy-in of the client and the insights the client can
offer when
special knowledge is needed or schedules need to be changed.

EXERCISES
1. The client might be surprised when the project manager’s style changes from
inviting new ideas during the conceptual phase to discouraging them during the
________ phase.
2. One problem with client participation in project teams is that a client can
have
______ influence.
3. What should the client know about the different management styles used in
the
initiation, execution, and closeout phases of the project?
4. What is an advantage of having the client participate in some project
teams?

Client Influence

Consider a project you have been involved in which the client took part in
meetings
and decision making. If you were to do the project again, describe how you
would
manage the client’s involvement. Specifically, describe the positive aspects
that you
would repeat and the negative aspects that you would try to avoid.

4.2 Understanding Values and Expectations

LEARNING OBJECTIVES
1. Identify methods for determining client expectations.
2. Identify methods for clarifying values and determining differences.
3. Describe the importance of dealing fairly with the client.

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Two of the sources of dissatisfaction in personal and business interactions are
unmet
expectations and a misunderstanding or ignorance of the values held by the other
party.
The project manager needs to avoid having a dissatisfied client due to a clash of
values or a
failure to meet expectations.

Clarify Expectations

Client expectations are expressed in chartering documents such as the scope of

work, the
project purpose statement, and the list of project deliverables. Other expectations
exist that
are more difficult to express in written documents.

Managing Expectations
One project client had such a difficult time with the billing processes on her
previous
project that significant project management time and resources were expended on
reconciling billing issues. This client has an expectation in the next project that
project
accounting and billing processes operate effectively and efficiently. Another
client had been
constantly surprised by changes and nonplanned events happening on the project.
This
client wanted to participate early in the discussion of problems that arise during
the life of
the problem and contribute to finding solutions and minimizing the negative impact
on
project performance.

Understanding and capturing these expectations in a written document is an

important
step in effectively meeting client expectations. Often it is the next question that
enables a
project manager to discover the less obvious expectations. The next question is the
one the
project manager asks after the initial response to inquiries about expectations. In
our
example, the client may express that he or she wants project billings to be
accurate and
timely. This is an easily understandable expectation, but when the project manager
asked
the next question—“Can you tell me more about what you mean?”—the client revealed
the
problems on her previous project, and the project team developed a better
understanding

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of the client’s concern. The project team developed measures for tracking project
billings
that measured both timeliness and accuracy. This process enabled the project team
to
understand the client’s concern, develop work processes that demonstrated a
response,
and provide data to the client on the timeliness and the accuracy of the billing
processes.

For the client that expected to hear about problems early and participate in the
problem-
solving discussions, the project team shared the project action item register and
highlighted issues the team felt may be important to the client. The project manger
also
discussed potential concerns with the client during their weekly project update.

After the project team captures the client expectations, the team then develops a
method
for tracking performance against expectations. In our example, the project team
defined
accuracy and timeliness in measurable terms and tracked the team performance. The
project team developed a survey to track the client’s perception of inclusion in
the
problem-solving process and tracked the client’s response. These measures were then
presented in the project review meetings with other measures of project performance
such
as cost and schedule.

As the project team meets and exceeds the client expectations, these expectations
tend to
change. If the goal is 85 percent accuracy on all project billings, and the project
team begins
to perform with an average of 95 percent accuracy or higher and never falls below
90
percent, then the client begins to expect 95 percent accuracy. This is a realistic
expectation
of the client; it also changes the expectation so that meeting the client’s
expectation
becomes harder. Even if expectations change, it is important to maintain the
original goal.
This reminds the client at the end of the project that the project team not only
met
expectations but also raised them during the life of the project.

Clarify Values

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Values are desirable principles or qualities. [1] Disagreements based on
differences in values
are extremely difficult to resolve because compromising means compromising your
values.
Organizations often have developed a list of corporate values. Sometimes these are
real and
sometimes they are more important to the corporate brand. The project manager needs
to
understand the real organizational and personal values related to the project.

On construction projects, safety is an important consideration in the planning and

execution of a project. Every construction company will assert a strong safety
value. The
value is tested when safety rules are developed. Is the organization willing to
terminate or
sanction an employee for a major safety violation? This is not a yes or no question
but the
beginning of a dialogue. Everyone on the project needs to understand safety rules,
and
consistent application of the approach to safety is critical to establishing a
safety culture on
the project. Agreeing on a safety program based on a value for safety at the
beginning of a
project will prevent serious confrontations later.

Phone Etiquette
A large project in Washington had a client that valued communications. All the
members of
the client’s team had the newest phone technology and took calls during project
meetings.
The project team saw this behavior as rude and interfering with the effectiveness
of the
project. The client was very comfortable in this chaotic environment and saw
constant
communication as a value that helped the organization identify and respond to
opportunities. This provided the organization with a competitive advantage in their
marketplace. The same behavior was preventing the project team from developing a
common understanding and agreeing on a project plan because they could not focus on
the
needs of the project long enough to develop this common understanding. The project
manager and the lead client recognized the potential conflict for the project and
developed
a list of project meetings that would be “cell-less,” which meant that the team
members
would turn cell phones off for that meeting. Other meetings would follow the
cultural
standards of the client.

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Developing a mutual understanding of the personal and organizational values and
dealing
with differences during the early phases of the project will significantly reduce
the
potential for insolvable conflicts. This becomes more important on a large, complex
project
where the likelihood of a diverse project team is high, and the team may have to
deal with
different laws, customs, and cultural values. Developing an understanding of these
differences and developing an appreciation for the value of this diversity for
project team
members can prevent conflict later in the project.

Deal Fairly with the Client

During the life of the project, the project manager will often have the opportunity
to take
advantage of the client, either because a clause in the contract is not written
accurately or
because the project manager has access to more detailed information. For example, a
client
finds a mistake in the original documents provided to the project team. The project
team
analyzes the new information to access the potential impact on the project cost and
schedule. A skilled project manager can demonstrate a negative impact and increase
project profits by requesting a change order. A skilled project manager can also
usually find
an innovative approach to finding a solution without increasing the cost or
schedule. In
most cases, the client wants to be treated fairly. Fairness is characterized by
impartiality
and honesty that is free from self-interest, prejudice, or favoritism. [2] If the
client interprets
the change order as fair, then the project manager has the opportunity to create a
satisfied
client. If the client believes the behavior of the project manager is unfair, then
it is difficult
to create a satisfied client.

KEY TAKEAWAYS
 To identify client expectations, review written documents, but have a
dialogue with
the client to uncover unwritten expectations by asking questions and listening.
Manage increasing expectations by reminding the client of the original
objectives.

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 Determine the stated corporate values by reviewing written documents and
review
actions related to those stated values to see which ones are the basis for
action.
Attempt to avoid conflicts of values by identifying the differences before
they become
problems.
 Do not take advantage of clients’ mistakes, but help them meet their
objectives in
spite of their errors. Live your own values of fairness.

EXERCISES
1. If a project is regularly exceeding the stated goal for quality, it is
important to
remind the client of the __________ objective.
2. Values are desirable _______ or qualities.
3. Treating a client fairly means avoiding _______, prejudice, or favoritism.
4. What are some written sources of client expectations?
5. What is an example of a corporate value?
6. What does it mean to treat a client fairly?

Organizational Values

Choose an organization with which you are familiar that proclaims to support a
particular set of values. Describe actions that it has taken that either
support or differ
from its stated values.

[1] Merriam-Webster Unabridged Online Dictionary, s.v.

“values,” http://unabridged.merriam-
webster.com/cgi-bin/collegiate (accessed June 18, 2009).
[2] Merriam-Webster Unabridged Online Dictionary, s.v.
“fairness,” http://unabridged.merriam-
webster.com/cgi-bin/collegiate?va=fairness&x=0&y=0 (accessed June 18, 2009).

4.3 Dealing with Problems

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 LEARNING OBJECTIVES
1. Describe standards and procedures for dealing with problems.
2. Describe the advantages of dealing with difficult issues as soon as they
arise.
3. Describe the importance of establishing methods for revising major
decisions.

Projects always experience unexpected problems that produce stress. Dealing with
problems with competence is vital to maintaining a good relationship with clients.

Establish Standards and Procedures for Decisions

There are competing interests on projects, and the larger and more complex the
project,
the greater the number of issues and concerns that need to be addressed.

Competing Interests
It’s 7:30 in the morning and the client called and wants you to have coffee in an
hour
with the new CEO, who flew in last night, to give him an update on the project. The
concrete trucks were supposed to be on site at 7:00, but they have not arrived. A
storm
is predicted for tomorrow, and the concrete has to be in and covered before the
storm
hits. A news reporter called and said she has an unnamed source who claims that
there
is contamination of a nearby river coming from the project site.
The project manager decided to postpone a team meeting about project scheduling and
cancelled lunch plans with his wife. It was going to be a busy day.

On large, complex projects, hundreds of decisions are made every day. Most of the
decisions focus on the day-to-day operation of the project. Early in the project,
decisions
focus on choosing between alternative options for accomplishing project goals and
determining how the project will be executed. Later, the focus is typically on
solving
problems. The project team develops solutions to deal with the barriers that emerge
and
develops alternative plans to meet project goals. The authority to make decisions
is

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typically established early in the project and identified in aresponsibility matrix
—a table of
people and types of problems that might require decisions—as shown in Figure 4.5
"The
Responsibility Matrix".

Figure 4.5 The Responsibility Matrix

The responsibility matrix identifies roles and client involvement.

Decisions that influence the outcome of the project, such as a delay to the project
completion date or an increase in the project costs, typically involve the client.
Some clients
prefer to make the final decision, with the project manager developing alternative
solutions
with a cost-benefit analysis of each of the alternatives. Others prefer to be
involved in
discussions to better understand the barriers, developing alternative solutions and
making
decisions in a team environment. Understanding the client’s decision-making
preference
and developing procedures and processes that support that preference is important
to
meeting client expectations.

Develop processes and methods that encourage both client and team members to
identify
issues and concerns early. Develop processes for dealing with these issues and
concerns
effectively. Define how and when decisions are made.

On projects with a low complexity level, the project manager and team leaders can
make
decisions informally, with short meetings or phone calls. Weekly or monthly staff
meetings

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are appropriate for more complex decisions. Even though the decision-making process
may
be simpler on less complex projects, it is still important to understand the
client’s
expectation for inclusion in the decision-making process and recording decisions
and
changes in project plans.

On more complex projects, the use of action item registers, weekly staff meetings,
responsibility matrices, and other tools foster the decision making on a timely
basis. For
project teams operating in diverse locations, Internet-based tools for recording
and
tracking action items can provide a location for capturing issues and concerns.
Deal with Difficult Issues Early
Project managers typically have a high degree of confidence in their ability to
deal with
issues and concerns as they arise. The delivery of some equipment is delayed a
week,
causing changes in the project schedule, or the beta test of a software program
identified
far more problems than expected. The project manager knows the problems, the team
developed a solution, and the project has a plan for recovering. The project will
be back on
track soon. Should the project manager inform the client? The answer seems like an
easy
yes, yet many project managers often believe there is no reason to bother the
client with a
problem they have under control.

Then the second delay occurs on the equipment delivery or the fixes for the beta
test are
more costly than expected. Now the problems have elevated to the point the clients
should
be informed. The greater the distance between the time of the event and the time
the client
knows about the events, the greater the client’s frustration and mistrust.
Including the
client in the processes for analyzing project issues or concerns as well as the
recovery
planning enables the client to develop confidence that problems are being
addressed.
Including the client early in the process for dealing with problems enables the
client to
contribute with solutions and builds confidence that he or she is aware of critical
issues on
the project.

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New Estimates Increase Cost Projections
On a large, complex project in South America, the project team was reestimating the
project
cost and schedule projections after the project design was complete. The team was
also
conducting a new risk analysis, and the results of the cost and schedule
projections,
together with the risk analysis, provided the client with better cash flow
projections. Early
in the process, the project team understood that the cost projections would
significantly
increase, and the final project cost would be significantly above the contingency
set aside
for the project.

The client looked for an early indication of the results of the analysis, and the
project
manager kept reporting it was too early to know. The project team debated how much
contingency the project needed and how to inform the client. When the client was
told the
results of the cost projections, the response was a combination of frustration and
anger.
The project manager was removed from the project and a new project manager
assigned.

The project manager should have dealt with the increased cost of the project early
on.
When first indications suggested that estimates were low and several items in the
budget
needed extra funds, the project manager should have had conversations with the
client.
Including one or more members of the client’s team in the reevaluation effort would
have
kept the client informed of the progress regularly and built trust in the new
numbers. The
project team could have offered suggestions and contributed to possible solutions
for
addressing the concerns that were developing, as costs were higher than expected.
Dealing
openly and early with the client is critical to client satisfaction.

Provide Mechanisms for Revisiting Major Decisions and

Issues

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The project environment moves fast, and decisions are made and implemented to keep
pace. Decisions made in the conceptual phase of the project seem less effective
during the
design phase. It is not that the decision was necessarily wrong; based on the data
at the
time, most decisions are understandable. With new information, it is sometimes
important
to revisit and change decisions made earlier in the project. As obvious as this
sounds, many
project teams are reluctant to challenge earlier decisions. Without a mechanism in
place to
revisit decisions, decisions may be seen as final. This sense of finality may slow
down the
decision-making process to make sure every decision is right. Delays in decisions
can put
activities behind schedule and affect the project completing on time.

Mechanisms for revisiting decisions are similar to project change orders. Similar
to a
change order, a request to revisit a decision must be initiated by someone on the
team. The
formality of methods used by the project to revisit a decision depends on the
complexity
profile of the project. On less complex projects, an informal discussion in project
meetings
can develop the awareness that a decision needs to be revisited. On more complex
projects,
the action item register and the weekly project meetings provide a venue for
revisiting
decisions.

Sometimes people asked that decisions be revisited because they did not like the
decision
that was made.

Revisiting Decisions
On an engineering project, the electrical design schedule was changed to support
the
completion of the activities on the critical path by a project milestone date. The
change
increased the number of hours needed to complete the work because of the change in
work
processes. The project manager accepted the costs of the change to achieve the
milestone
date, but the manager of the electrical engineering team objected because the
change
would cause their part of the job to exceed the budgeted amount. The project
manager

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decided not to revisit the decision because no new information was available that
would
cause the decision to change.

Clients are often involved in major decisions on the project. For example, if the
project
invested another million dollars, the project could be completed a month early. The
client
will conduct the cost-benefit analysis and decide if the extra expense is worth the
gain in
time. Once this decision is made, the necessary changes are made in the execution
plan and
new goals are established through the change management process. Later, for reasons
outside the control of the project, the project will not experience the time
savings from the
additional investment of funds. It is important to revisit the decision. A culture
that
encourages project team members to bring up the need for revisiting decisions and a
mechanism that makes it easy to surface issues and concerns will increase the
likelihood
that these issues will come to the attention of the management team.

Vendor Decision Not Revisited

On a major pharmaceutical project in Ireland, a United States–based company was
building
a new plant to produce a new drug, and the priority was completing the plant to get
the
drug to the marketplace. The client was involved in the process to select major
equipment,
and after an expedited bidding process, an equipment vendor was selected for a
critical
piece of the plant equipment. Later, members of the project team learned that this
vendor
was overcommitted, and there was a high risk that the vendor would not be able to
meet
the schedule dates. Because it was the client’s decision, the project leadership
was not
warned of the possible risk. Weeks later, the vendor began missing critical dates,
and the
leadership became aware of the risks.
The client was furious that the decision was not revisited earlier in the project.
Even
though changes were made that brought the project back on track, the client did not
trust
the project team again. The project finished on time and within budget while
meeting all
quality specifications, but the client was not pleased.

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Establishing a culture and a mechanism for revisiting project decisions is
important for
meeting client expectations.

Emergency Button
An experienced project manager came up with a clever idea to enable his clients to
capture
the attention of the project team. He gave the client’s team a bright red index
card and said,
“This is your emergency button.” The card was a symbol. It empowered the client
with the
ability to capture the complete attention of the project team. When the client
presented the
red button, the project manager instantly stopped current activities and focused on
the
client. The red button meant the project leadership focused on understanding the
issue or
concern presented by the client and developing project priorities to meet the
client’s
concerns.
Although the red button was rarely used, it gave a sense of power to the client and
communicated that the client was important. One project manager used the “red
button” on
four projects, and on two of the projects the card was never used. On one project,
the client
used the card to get the project ready for a visit from the client’s boss, and on
the fourth
project, the client used the card often. Although the project manager believed the
card was
overused to get the total attention of the project leadership team, he never
regretted
providing the client with the card. The “red button” card provided them a method to
distinguish the really important needs of the client.

KEY TAKEAWAYS
 Determine who should be included in decisions for each category using a
decision
matrix
 Decide at what level of problem the client should be involved by discussing
the
threshold with the client. Involve the client early in the process to give them
a chance
to contribute to the solution before the problem gets worse.

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 Decide what criteria to use to determine when a decision should be
revisited.
Additional information that is developed during the design and planning phase
can
require that decisions made during the conceptual phase need to be
reconsidered.

EXERCISES
1. A table that displays who should be included in making different types of
decisions
is a decision ______.
2. A client should be involved in decisions ______ in the process of dealing
with a
problem.
3. Information that is developed in the planning phase can require
reconsidering
decisions that were made in the _________ phase.
4. Describe a responsibility matrix and how it is used.
5. Why is it important to inform a client early in the process of resolving a
problem?
6. Why should earlier decisions be revisited?

Threshold for Client Involvement

Consider a project with which you are familiar where the client was not
included in
making day-to-day decisions. Describe a type of problem that would be too
small to
take to the client for input and another problem that would be just large
enough to
require client involvement. If you were trying to communicate the reasons for
your
decision to another team member, describe the threshold that had to be crossed
for
the second problem to qualify for client involvement.

4.4 Nurturing a Feeling of Satisfaction

LEARNING OBJECTIVES
1. Describe the advantages of using project milestones.

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2. Describe the advantages of including the client in celebrations and
guidelines for
doing so.

Manage around Project Milestones

Project milestones represent significant events on the project. Some project
milestones
signify external events that provide critical information or resources to the
project or an
external event that requires information or deliverables from the project.

Board of Directors Meeting

The client’s board of directors meets on March 15, and the client must report the
project
progress and submit the project final budget for approval. The project team
develops the
information needed for the project progress report and finalizes the project
estimate by
March 10 to provide the client with five days to review the information and make
any
changes.

Recall that a milestone is an event that consumes no time or resources. In this

example, the
Provide Client with Report is the milestone event. All the activity to develop and
deliver the
report takes place before the milestone event.

Extra Effort to Meet a Milestone

On March 8, the project team determines that the progress report and estimate
cannot be
completed by March 10. The team will need one more day to complete the report and
estimate. Should the project manager ask the client for a one-day extension? The
client may
be able to review and revise the information before it goes to the board in four
days, but
the message to the client has a bigger impact on the project. By missing the
deadline, the
client can develop the perception that client deadlines are less important, that
the project
team is unable to complete critical tasks on time, or that the project team is not
dedicated.

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Instead of asking the client for one more day, the project manager pulls together
the project
team and asks what it will take to make the milestone date. If the estimator works
overtime
tonight and the project controls team starts a few hour early on March 9, then the
project
controls team can work late on March 9 to finish the report. The project
administrative
staff can come in early on March 10 to do the revisions and make copies, and the
reports
can be ready by noon. Other activities will have to be delayed and critical staff
will work
overtime, but the client will get the needed information by the promised date.

Making the extra effort to deliver by the milestone date communicates to the client
and the
project team the importance of meeting milestones. The client develops confidence
that the
project team is dedicated to meeting client expectations and that deadlines are
important.
The extra efforts by the team to meet the client’s critical dates will often result
in the client
making an extra effort to help the project team meet critical dates.

During the life of a project, the project team encounters a large number of small
problems
that can cause small delays. A thunderstorm caused the loss of electricity in the
office
building, and the bidders’ conference had to be delayed one day; a computer virus
shut
down the use of computers, causing the loss of another day; and the airplane
flights were
late, so the project reviews were one day late. None of these events caused
significant
problems for the project, but together they add up to delays that could affect the
end date
of the project.

If these delays continue to add up, then the project end date will begin to slip.
As the project
nears the completion date, the team will work overtime, decisions will be rushed,
and
resources will be added to the project to avoid missing the project end date. This
type of
end-of-project atmosphere will leave a strong lasting impression with the client
and usually
does not produce a satisfied client.

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Project milestones provide the opportunity for the project manager to spread the
end-of-
project pressure over the life of the project. Project managers add resources,
authorize
overtime, and expedite work to accomplish what is required to meet the milestone.
The
project work increases in intensity, motivating project team members to accomplish
the
work on time until the milestone is achieved. After the milestone is achieved, the
project
celebrates and acknowledges the success of the team and then begins working toward
the
next milestone. Project managers use milestones to increase this intensity and
focus to
keep the project on schedule and prevent the delays of hard decisions to the end of
the
project.

This approach allows the project manager to lower the intensity of the project
after a
milestone is accomplished. After celebrating the successful completion of the
milestone, a
project manager will often review the future plans and allow the team to reflect on
finding
new ways of approaching the project work. Adjustments are made to the project work
plan
and the milestone cycle begins again.

Milestones are rarely evenly distributed over the length of the project. Project
managers
often select key events and make them milestone events to create roughly equal
spacing
between milestone dates. On large, multiyear projects, managing to a milestone each
quarter provides good timing for the project. On shorter projects, monthly
milestones can
provide the right timing. On larger, more complex projects, typically a large
number of
activities can be designated as milestones for the project. On smaller projects,
the project
manger may need to artificially create milestones.

Include the Client in Celebrations

Project celebrations are a time when the project manager and the management team
can
thank the project team members for their contribution to the project’s success at
various
stages of the project. Celebrations for successfully accomplishing project
milestones are
good examples of creating the opportunity to honestly celebrate. Some projects have

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 birthday celebrations for the team or holiday celebrations, and although these
events can
be a positive contribution to the project morale, they are not connected to the
success of
the team in accomplishing project objectives.

Successful celebrations reinforce the effort and activities that created the
success.
Successful celebrations communicate appreciation for the energy and commitment
of the
team, focused on team goals. Successful celebrations communicate progress and
confidence
to project stakeholders, and successful celebrations share the success of the
project with
the client and reinforce the meeting of client expectations.

Successful celebrations result from good planning and the application of some
basic
principles for celebrations. The following are some of the basic principles for
developing a
successful celebration:

 What was accomplished and why it was important to the overall success
of the
project should be communicated to the team. Discuss the goals that were
accomplished and
the milestones met and how that advanced the project. For example, the civil
design team
on a construction project completed the site work design early, the bids for
the site work
were on the street early, and the project met the milestone of moving dirt on
the site by
May 1. Starting the site work early helps assure that the construction work
will be under a
roof before the bad weather hits in the late fall.
 Appreciation should be expressed specifically. A general statement that
the project
met all the goals does not carry the same meaning as “the project team
completed the
development of the new training curriculum by December 1.” People associate
their
activities with meeting the milestone and take pride in their contribution to
the project’s
success. Team members appreciate it when the project manager and others
recognize their
contribution.
 Celebrations should occur in the work area where the accomplishments
were
achieved. Celebrating holidays in the cafeteria is appropriate. Celebrating the

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 accomplishments of the project in the project task force area brings a stronger
association
of the work of the project with the accomplishments being celebrated.
 Accomplishments of the team should be celebrated shortly after the
milestone is
achieved. The more time elapsed between the accomplishments and the
celebrations, the
less the impact.
 The persons that publicly recognize the team are important. The project
leadership
expressing personal appreciation reinforces the recognition of the work and
effort to
achieve project goals. Senior managers of the company reinforce the importance
of the
project to company goals and recognition of the role of individual project team
members’
contribution to company success.
 In many cultures, food is associated with times of reflection, such as
the dinner table
discussion or lunch meetings. Serving food communicates that this event is
special. Serving
food also communicates that someone took the time to prepare and serve the
project team
as a form of appreciation.
 Clients play a special role in celebrations, and celebrations play a
special role in
meeting client expectations. A client expression of appreciation to the project
team is often
more significant than the appreciation expressed by senior managers. Clients in
most
commercial organizations are acknowledged as the source of profits, bonuses,
and future
business. A client expressing appreciation to the project team, especially in
front of the
company’s senior management, gives the project team special status for creating
goodwill
with clients.
When clients speak at a celebration, their remarks usually provide high praise
for the work
of the project team. This event provides an opportunity for the client to
reflect and appraise
the progress of the project team. Often the client concludes that the team is
meeting or
exceeding expectations. The celebration reinforces that conclusion.

If the client has doubts about some of the project performance but still speaks
at the
celebration and praises the team, the client may experience cognitive
dissonance. The
client will typically reevaluate the perception of the project team’s
performance and

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conclude the team really has done a good job. The perception is now consistent with
the
client’s remarks and the end result is a client perception of a project as meeting
expectations.

Understanding and meeting client expectations is a proactive process. The project

manager
and the project team develop plans and processes that focus on defining both
specifications
and expectations that are often difficult to quantify. The team executes the
project in a way
that meets both the specifications of the client and also the more subtle
expectations not
reflected in the measured data.

KEY TAKEAWAYS
 Making extra efforts to meet milestone dates keeps the project on track and
avoids
large problems at the end of the project. It allows for lessening of intensity
after a
milestone to provide stress relief for team members, and it builds confidence
in the
client that the project will be completed on time.
 If the client is included in milestone celebrations, he or she has a better
understanding of what effort it takes to keep the project on track. If asked
to say
something at the celebration, the client will usually say positive things that
have an
effect on his or her perception of the project. Celebrations should
communicate the
importance of the milestone to the project and praise specific
accomplishments. The
celebration should occur in the workplace. Get high-ranking people to praise
the
project team in front of each other to reinforce a sense of satisfaction and
include
food in the celebration to make it more social.

EXERCISES
1. Managing a project using ___________ keeps the project on track and allows
for
periodic celebrations of achieving interim objectives.
2. Clients should be encouraged to ___________ in celebration of project
achievements.

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3. Why should extra effort be expended to meet a milestone when the final
project’s
due date is months away?
4. Why should the client be included in milestone celebrations?
Milestone Celebrations
Consider a workplace with which you are familiar. If it utilizes milestone
celebrations
to mark completion of special tasks or phases of work, compare the components
of
the celebration with those recommended in the text. If it does not, describe
how you
would use milestone celebrations in this workplace.

4.5 Exercises
Exercises at the end of the chapter are designed to strengthen your understanding
and
retention of the information recently acquired in the chapter.

ESSAY QUESTIONS
Write several paragraphs to provide more in-depth analysis and consideration
when
answering the following questions.

1. Describe a project with which you are familiar that resulted in a

dissatisfied client.
The project can be personal or professional if it serves to illustrate the
concepts in this
chapter. Identify how the client was included or excluded from project teams
and how
they were informed of problems. Analyze the situation and draw a conclusion
regarding how a similar client might be satisfied on a future project.
2. Describe a project with which you are familiar that resulted in a satisfied
client. The
project can be personal or professional if it serves to illustrate the
concepts in this
chapter. Identify how the client was included or excluded from project teams
and how
they were informed of problems. Analyze the situation and draw a conclusion
regarding which aspect of client relations was most effective in achieving
client
satisfaction.

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3. Describe a project with which you are familiar where early decisions had to
be
changed based on information that became available later in the project.
Analyze the
process by which the decision was made and at what point the client was
informed of
the need for a change. Describe any changes you would make in the process or
timing
that might improve client satisfaction.

DISCUSSION
The exercises in this section are designed to promote exchange of information
among
students in the classroom or in an online discussion. The exercises are more
open
ended, which means that what you find might be completely different from what
your
classmates find, and you can all benefit by sharing what you have learned.

1. Milestone celebrations. Consider celebrations of milestone events in your

life and
how those celebrations affected your memory and attitudes toward achieving
those
objectives. Do you think using milestone celebrations can be a useful tool for
projects?
Express your opinion and support it with examples.
2. Client participation. Where would you place the threshold for involving a
client in a
decision? What criteria would you use and how would you involve the client
with that
process of establishing the threshold?

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 Chapter 5
Working with People on Projects
Project management encompasses the concepts of management and leadership. Although
leadership and management research have made distinctions between the two concepts,
the project management profession has integrated the two concepts, and project
management refers to the leadership and management needed to lead and manage a
project. A project manager leads people and manages work processes.

Project management is both art and science. It is the art of creating a vision of
success,
building a project team, and developing a project story. Project leadership
encompasses the
personality, leadership style, and leadership skills of the project manager.
Project
management also includes formulas and processes for calculating the critical path,
developing goals, and managing meetings.

Some projects are more leader sensitive, [1] and the success of the project is more
dependent on the leadership skills of the project manager. Leadership is a function
of the
project manager’s leadership style, personality type, and understanding of
emotions.
Management is mastery of the skills needed to organize and execute the work of the
project. Each project includes challenges that require both leadership and
management.
The leadership and management skills needed are related to the project complexity
profile.
In general, more complex projects require a greater degree of leadership and
management
skill. This chapter will review various leadership approaches and management
skills.

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[1] Albert A. Einsiedel, “Profile of Effective Project Managers,” Project
Management Journal 18
(1987): 5.

5.1 Working with Individuals

LEARNING OBJECTIVES
1. Describe emotional intelligence.
2. Describe personality types and tools used to describe them.
3. Describe the relationship between leadership style and personality types.
4. Describe people skills that are necessary for negotiation and conflict
resolution.
5. Describe how work is delegated.
6. Describe individual goals that are related to personality types.

Working with other people involves dealing with them both logically and
emotionally. A
successful working relationship between individuals begins with appreciating the
importance of emotions and how they relate to personality types, leadership styles,
negotiations, and setting goals.

Emotional Intelligence
Emotions are neither positive nor negative. Emotions are both a mental and
physiological
response to environmental and internal stimuli. Leaders need to understand and
value
their emotions to appropriately respond to the client, project team, and project
environment. Daniel Goleman [1] discussed emotional intelligence quotient (EQ) as a
factor
more important than IQ in predicting leadership success. According to Robert Cooper
and
Ayman Sawaf, “Emotional intelligence is the ability to sense, understand, and
effectively
apply the power and acumens of emotions as a source of human energy, information,
connection, and influence.” [2]
Emotional intelligence includes the following:

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 Self-awareness
 Self-regulation
 Empathy
 Relationship management

Emotions are important to generating energy around a concept, to building

commitment to
goals, and to developing high-performing teams. Emotional intelligence is an
important
part of the project manager’s ability to build trust among the team members and
with the
client. It is an important factor in establishing credibility and an open
dialogue with project
stakeholders. Emotional intelligence is a critical ability for project
managers, and the more
complex the project profile, the more important the project manager’s EQ
becomes to
project success.

Personality Types

Personality types refer to the difference among people. Understanding your

personality
type as a project manager will assist you in understanding your tendencies and
strengths in
different situations. Understanding personality types can also help you
understand the
contributions of various members of your team and the various needs of your
client.

There are a number of tools for helping people assess personality types, such
as
the DISCacronym, which stands for the following:

 Dominance—relates to control, power, and assertiveness

 Influence—relates to social situations and communication
 Steadiness—relates to patience, persistence, and thoughtfulness
 Conscientiousness—relates to structure and organization

These four dimensions are then grouped to represent various personality types.

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 The Myers-Briggs Type Indicator (MBTI) is one of most widely used tools for
exploring
personal preference, with more than two million people taking the MBTI each
year. The
MBTI is often referred to as simply the Myers-Briggs. It is a tool that can be
used in project
management training to develop awareness of preferences for processing
information and
relationships with other people.

Based on the theories of psychologist Carl Jung, the Myers-Briggs uses a

questionnaire to
gather information on the ways individuals prefer to use their perception and
judgment.
Perception represents the way people become aware of people and their
environment.
Judgment represents the evaluation of what is perceived. People perceive things
differently
and reach different conclusions based on the same environmental input.
Understanding
and accounting for these differences is critical to successful project
leadership.

The Myers-Briggs identifies sixteen personality types based on four preferences

derived
from the questionnaire. The preferences are between pairs of opposite
characteristics and
include the following:

 Extroversion (E)-Introversion (I)

 Sensing (S)-Intuition (N)
 Thinking (T)-Feeling (F)
 Judging (J)-Perceiving (P)

Sixteen Myers-Briggs types can be derived from the four dichotomies. Each of
the sixteen
types describes a preference: for focusing on the inner or outer world (E-I),
for
approaching and internalizing information (S-I), for making decisions (T-F),
and for
planning (J-P). For example, an ISTJ is a Myers-Briggs type who prefers to
focus on the
inner world and basic information, prefers logic, and likes to decide quickly.

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It is important to note that there is no best type and that effective
interpretation of the
Myers-Briggs requires training. The purpose of the Myers-Briggs is to understand
and
appreciate the differences among people. This understanding can be helpful in
building the
project team, in developing common goals, and communicating with project
stakeholders.
For example, different people process information differently. Extraverts prefer
face-to-
face meetings as the primary means of communicating, while introverts prefer
written
communication. Sensing types focus on facts, and intuitive types want the big
picture.

On larger, more complex projects, some project managers will use the Myers-Briggs
as a
team-building tool during project start-up. This is typically a facilitated work
session where
team members take the Myers-Briggs and share with the team how they process
information, what communication approaches they prefer, and what decision-making
preferences they have. This allows the team to identify potential areas of
conflict, develop
communication strategies, and build an appreciation for the diversity of the team.

Personality Type Badges

One project team in South Carolina used color-coded badges for the first few weeks
of the
project to indicate Myers-Briggs type. For this team, this was a way to explore how
different team members processed information, made decisions, and took action.

Some people use a description of personality types that is based on research that
shows
that some functions of thinking and perception are localized on the left or right
side of the
brain. In this system, the left side of the brain is associated with recalling
specific facts and
definitions and performing calculations, while the right side of the brain is
associated with
emotions, estimates, and comparisons. The attraction of this system is that it
categorizes
people into just two categories—left or right brain dominance—but it should be used
cautiously to avoid oversimplification.

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Understanding the differences among people is a critical leadership skill. This
includes
understanding how people process information, how different experiences will
influence
the way people perceive the environment, and how people develop filters that allow
certain
information to be incorporated while other information is excluded. The more
complex the
project, the more important the understanding of how people process information,
make
decisions, and deal with conflict.

Leadership Styles

Leadership is a function of both the personal characteristics of the leader and the
environment in which the leadership must occur. Several researchers have attempted
to
understand leadership from the perspective of the characteristics of the leader and
the
environment of the situation. Robert Tannenbaum and Warren Schmidt [3] described
leaders as either autocratic or democratic. Harold Leavitt [4] described leaders as
pathfinders (visionaries), problem solvers (analytical), or implementers (team
oriented).
James MacGregor Burns [5] conceived leaders as either transactional (focused on
actions
and decisions) or transformational (focused on the long-term needs of the group and
organization).

Fred Fiedler [6] introduced contingency theory and the ability of leaders to adapt

their
leadership approach to the environment. Most leaders have a dominant leadership
style
that is most comfortable. For example, most engineers spend years training in
analytical
problem solving and often develop an analytical approach to leadership.

A leadership style reflects personal characteristics and life experiences. Although

a project
manager’s leadership style may be predominantly a pathfinder (using Leavitt’s
taxonomy),
most project managers become problem solvers or implementers when they perceive the
need for these leadership approaches. The leadership approach incorporates the
dominant
leadership style and Fiedler’s contingency focus on adapting to the project
environment.

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No particular leadership approach is specifically appropriate for managing a
project. Each
project has a unique set of circumstances because, by definition, projects are
unique
endeavors. The leadership approach and the management skills required to be
successful
vary depending on the complexity profile of the project. The Project Management
Institute
published research that studied project management leadership skills [7] and
concluded
that project managers needed good communication skills and the ability to build
harmonious relationships and motivate others. Beyond this broad set of leadership
skills,
the successful leadership approach will depend of the profile of the project.

A transactional project manager with a strong command and control leadership

approach
may be very successful on a small software development project or a construction
project,
where tasks are clear, roles are well understood, and the project environment is
cohesive.
This same project manager is less likely to be successful on a larger, more complex
project
with a diverse project team and complicated work processes.

Matching the appropriate leadership style and approach to the complexity profile of
the
project is a critical element of project success. Even experienced project managers
are less
likely to be successful if their leadership approach does not match the complexity
profile of
the project.

Each project phase may also require a different leadership approach. During the
start-up
phase of a project, when new team members are first assigned to the project, the
project
may require a command and control leadership approach. Later, as the project moves
into
the conceptual development phase, creativity becomes important, and the project
management takes on a more transformational type leadership approach. Most
experienced project managers are able to adjust their leadership approach to the
needs of
the project phase. Occasionally, on very large, complex projects, some companies
will
change project managers after the conceptual phase of the project to bring in a
different

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project leadership approach or change project managers to manage the closeout of a
project. Changing project managers may bring the right level of experience and the
appropriate leadership approach but is also disruptive to a project. Senior
management
must balance the benefit of matching the right leadership approach with the cost of
disrupting the project.

Multinational Chemical Plant Project

On a project to build a new chemical plant that produced dyes for paint, the
project
manager led a team that included members from partners that were included in a
joint
venture. The design manager was Greek, the construction manager was German, and
other
members of the team were from various locations in the United States and Europe. In
addition to the traditional potential for conflict that arises from team members
from
different cultures, the design manager and construction manager were responsible
for
protecting the interest of their company in the joint venture.

The project manager held two alignment or team-building meetings. The first was a
two-
day meeting held at a local resort and included only the members of the project
leadership
team. An outside facilitator was hired to facilitate discussion, and the topic of
cultural
conflict and organizational goal conflict quickly emerged. The team discussed
several
methods for developing understanding and addressing conflicts that would increase
the
likelihood of finding mutual agreement.

The second team-building session was a one-day meeting that included the executive
sponsors from the various partners in the joint venture. With the project team
aligned, the
project manager was able to develop support for the project’s strategy and
commitment
from the executives of the joint venture. In addition to building processes that
would
enable the team to address difficult cultural differences, the project manager
focused on
building trust with each of the team members. The project manager knew that
building
trust with the team was as critical to the success of the project as the technical
project

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 management skills and devoted significant management time to building and
maintaining
this trust.

Negotiation and Conflict Resolution

Einsiedel [8] discussed qualities of successful project managers. The project

manager must
be perceived to be credible by the project team and key stakeholders. The
project manager
can solve problems. A successful project manager has a high degree of tolerance
for
ambiguity. On projects, the environment changes frequently, and the project
manager must
apply the appropriate leadership approach for each situation.

The successful project manager must have good communication skills. Barry
Posner [9] connected project management skills to solving problems. All project
problems
were connected to skills needed by the project manager:

 Breakdown in communication represented the lack of communication

skills.
 Uncommitted team members represented the lack of team-building skills.
 Role confusion represented the lack of organizational skills.

The research indicates that project managers need a large numbers of skills.
These skills
include administrative skills, organizational skills, and technical skills
associated with the
technology of the project. The types of skills and the depth of the skills
needed are closely
connected to the complexity profile of the project. Typically on smaller, less
complex
projects, project managers need a greater degree of technical skills. On
larger, more
complex projects, project managers need more organizational skills to deal with
the
complexity. On smaller projects, the project manager is intimately involved in
developing
the project schedule, cost estimates, and quality standards. On larger
projects, functional
managers are typically responsible for managing these aspects of the project,
and the
project manager provides the organizational framework for the work to be
successful.

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Listening

One of the most important communication skills of the project manager is the
ability to
actively listen. Active listening takes focus and practice to become effective.
Active listening
is placing yourself in the speaker’s position as much as possible, understanding
the
communication from the point of view of the speaker, listening to the body language
and
other environmental cues, and striving not just to hear, but to understand.

Active listening enables a project manager to go beyond the basic information that
is being
shared and to develop a more complete understanding of the information.

Client’s Body Language Indicates Problems at a

Board Meeting
A client just returned from a trip to Australia where he reviewed the progress of
the project
with his company’s board of directors. The project manager listened and took notes
on the
five concerns expressed by the board of directors to the client.

The project manager observed that the client’s body language showed more tension
than
usual. This was a cue to listen very carefully. The project manger nodded
occasionally and
clearly demonstrated he was listening through his posture, small agreeable sounds,
and
body language. The project manager then began to provide feedback on what was said
using phrases like “What I hear you say is…” or “It sounds like.…” The project
manager was
clarifying the message that was communicated by the client.

The project manager then asked more probing questions and reflected on what was
said.
“It sounds as if it was a very tough board meeting.” “Is there something going on
beyond
the events of the project?” From these observations and questions, the project
manager
discovered that the board of directors meeting did not go well. The company had

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 experienced losses on other projects, and budget cuts meant fewer resources
for the
project and an expectation that the project would finish earlier than planned.
The project
manager also discovered that the client’s future with the company would depend
on the
success of the project. The project manager asked, “Do you think we will need
to do things
differently?” They began to develop a plan to address the board of directors’
concerns.

Through active listening, the project manager was able to develop an

understanding of the
issues that emerged from the board meeting and participate in developing
solutions. Active
listening and the trusting environment established by the project manager
enabled the
client to safely share information he had not planned on sharing and to
participate in
creating a workable plan that resulted in a successful project.

The project manager used the following techniques:

1. Listening intently to the words of the client and observing the

client’s body language
2. Nodding and expressing interest in the client without forming
rebuttals
3. Providing feedback and asking for clarity while repeating a summary of
the
information back to the client
4. Expressing understanding and empathy for the client

The active listening was important to establishing a common understanding from

which an
effective project plan could be developed.

Negotiation

Negotiation is a process for developing a mutually acceptable outcome when the

desired
outcome for parties in the negotiation is sufficiently different that both
cannot achieve the
desired outcome. A project manager will often negotiate with a client, with
team members,
with vendors, and with other project stakeholders. A larger and more complex
project will

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 have a large number of stakeholders, often with conflicting desired outcomes.
Negotiation
is an important skill in developing support for the project and preventing
frustration
among stakeholders, which could delay or cause project failure.

Vijay Verma [10] suggests that negotiations involve four principles:

1. The first principle is to separate people from the problem. If the

person is seen as
the problem, then finding a mutually acceptable solution will be difficult.
Framing the
discussions in terms of desired outcomes enables the negotiations to focus on
finding new
outcomes.
2. The second principle is to focus on common interests. By avoiding the
focus on
differences, both parties are more open to finding solutions that are
acceptable.
3. The third principle is to generate options that advance shared
interests. Once the
common interests are understood, solutions that do not match with either
party’s interests
can be discarded, and solutions that may serve both parties’ interests can be
more deeply
explored.
4. Verma’s final principle is to develop results based on standard
criteria. The standard
criterion is the success of the project. This implies that the parties develop
a common
definition of project success.

For the project manager to successfully negotiate issues on the project, he or

she should
first seek to understand the position of the other party. If negotiating with
a client, what is
the concern or desired outcome of the client? What are the business drivers
and personal
drivers that are important to the client? Without this understanding, it is
difficult to find a
solution that will satisfy the client. The project manager should also seek to
understand
what outcomes are desirable to the project. Typically, more than one outcome
is
acceptable. Without knowing what outcomes are acceptable, it is difficult to
find a solution
that will produce that outcome.

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One of the most common issues in formal negotiations is finding a mutually
acceptable
price for a service or product. Understanding the market value for a product or
service will
provide a range for developing a negotiations strategy. The price paid on the last
project or
similar projects provides information on the market value. Seeking expert opinions
from
sources who would know the market is another source of information. Based on this
information, the project manager can then develop an expected range from the lowest
price
that would be expected within the current market to the highest price.

Additional factors will also affect the negotiated price. The project manger may be
willing
to pay a higher price to assure an expedited delivery or a lower price if delivery
can be
made at the convenience of the supplier or if payment is made before the product is
delivered. Developing as many options as possible provides a broader range of
choices and
increases the possibility of developing a mutually beneficial outcome.

The goal of negotiations is not to achieve the lowest costs, although that is a
major
consideration, but to achieve the greatest value for the project. If the supplier
believes that
the negotiations process is fair and the price is fair, the project is more likely
to receive
higher value from the supplier. The relationship with the supplier can be greatly
influenced
by the negotiation process and a project manager that attempts to drive the price
unreasonably low or below the market value will create an element of distrust in
the
relationship that may have negative consequences for the project. A positive
negotiation
experience may create a positive relationship that may be beneficial, especially if
the
project begins to fall behind schedule and the supplier is in a position to help
keep the
project on schedule.

Negotiation on a Construction Project

After difficult negotiations on a construction project in Indiana, the project
management
team met with a major project supplier and asked, “Now that the negotiations are
complete, what can we do to help you make more profit?” Although this question
surprised

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 the supplier, the team had discussed how information would flow, and confusion
in
expectations and unexpected changes always cost the supplier more money. The
team
developed mechanisms for assuring good information and providing early
information on
possible changes and tracked the effect of these efforts during the life of
the project.

These efforts and the increased trust did enable the supplier to increase
profits on the
project, and the supplier made special efforts to meet every project
expectation. During the
life of the project, the supplier brought several ideas on how to reduce total
project costs
and increase efficiency. The positive outcome was the product of good supplier
management by the project team, but the relationship could not have been
successful
without good faith negotiations.

Conflict Resolution

Conflict on a project is to be expected because of the level of stress, lack

of information
during early phases of the project, personal differences, role conflicts, and
limited
resources. Although good planning, communication, and team building can reduce
the
amount of conflict, conflict will still emerge. How the project manager deals
with the
conflict results in the conflict being destructive or an opportunity to build
energy,
creativity, and innovation.

David Whetton and Kim Cameron [11] developed a response-to-conflict model that

reflected
the importance of the issue balanced against the importance of the
relationship. The model
presented five responses to conflict:

1. Avoiding
2. Forcing
3. Collaborating
4. Compromising

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5. Accommodating

Each of these approaches can be effective and useful depending on the

situation. Project
managers will use each of these conflict resolution approaches depending on
the project
manager’s personal approach and an assessment of the situation.

Most project managers have a default approach that has emerged over time and
is
comfortable. For example, some project managers find the use of the project
manager’s
power the easiest and quickest way to resolve problems. “Do it because I said
to” is the
mantra for project managers who use forcing as the default approach to resolve
conflict.
Some project managers find accommodating with the client the most effective
approach to
dealing with client conflict.

The effectiveness of a conflict resolution approach will often depend on the

situation. The
forcing approach often succeeds in a situation where a quick resolution is
needed, and the
investment in the decision by the parties involved is low.

Resolving an Office Space Conflict

Two senior managers both want the office with the window. The project manager
intercedes with little discussion and assigns the window office to the manager
with the
most seniority. The situation was a low-level conflict with no long-range
consequences for
the project and a solution all parties could accept.

Sometimes office size and location is culturally important, and this situation
would take
more investment to resolve.

Conflict Over a Change Order

In another example, the client rejected a request for a change order because
she thought
the change should have been foreseen by the project team and incorporated into
the

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original scope of work. The project controls manager believed the client was using
her
power to avoid an expensive change order and suggested the project team refuse to
do the
work without a change order from the client.

This is a more complex situation, with personal commitments to each side of the
conflict
and consequences for the project. The project manager needs a conflict resolution
approach that increases the likelihood of a mutually acceptable solution for the
project.

One conflict resolution approach involves evaluating the situation, developing a

common
understanding of the problem, developing alternative solutions, and mutually
selecting a
solution. Evaluating the situation typically includes gathering data. In our
example of a
change order conflict, gathering data would include a review of the original scope
of work
and possibly of people’s understandings, which might go beyond the written scope.
The second step in developing a resolution to the conflict is to restate,
paraphrase, and
reframe the problem behind the conflict to develop a common understanding of the
problem. In our example, the common understanding may explore the change management
process and determine that the current change management process may not achieve
the
client’s goal of minimizing project changes. This phase is often the most difficult
and may
take an investment of time and energy to develop a common understanding of the
problem.

After the problem has been restated and agreed on, alternative approaches are
developed.
This is a creative process that often means developing a new approach or changing
the
project plan. The result is a resolution to the conflict that is mutually agreeable
to all team
members. If all team members believe every effort was made to find a solution that
achieved the project charter and met as many of the team member’s goals as
possible, there
will be a greater commitment to the agreed-on solution.

Project Goals Accomplished

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In our example, the project team found a new way to accomplish the project goals
without
a change to the project scope. On this project, the solution seemed obvious after
some
creative discussions, but in most conflict situations, even the most obvious
solutions can be
elusive.

Delegation
Delegating responsibility and work to others is a critical project management
skill. The
responsibility for executing the project belongs to the project manager. Often
other team
members on the project will have a functional responsibility on the project and
report to a
functional manager in the parent organization. For example, the procurement leader
for a
major project may also report to the organization’s vice president for procurement.
Although the procurement plan for the project must meet the organization’s
procurement
policies, the procurement leader on the project will take day-to-day direction from
the
project manager. The amount of direction given to the procurement leader, or others
on the
project, is the decision of the project manager.

If the project manager delegates too little authority to others to make decisions
and take
action, the lack of a timely decision or lack of action will cause delays on the
project.
Delegating too much authority to others who do not have the knowledge, skills, or
information will typically cause problems that result in delay or increased cost to
the
project. Finding the right balance of delegation is a critical project management
skill.

When developing the project team, the project manager selects team members with the
knowledge, skills, and abilities to accomplish the work required for the project to
be
successful. Typically, the more knowledge, skills, abilities, and experience a
project team
member brings to the project, the more that team member will be paid. To keep the
project
personnel costs lower, the project manager will develop a project team with the
level of
experience and the knowledge, skills, and abilities to accomplish the work.

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On smaller, less complex projects, the project manager can provide daily guidance
to
project team members and be consulted on all major decisions. On larger, more
complex
projects, there are too many important decisions made every day for the project
manager
to be involved at the same level, and project team leaders are delegated decision-
making
authority. Larger projects, with a more complex profile will typically pay more
because of
the need for the knowledge and experience. On larger, more complex project, the
project
manager will develop a more experienced and knowledgeable team that will enable the
project manager to delegate more responsibility to these team members.

Construction Project in Peru

A construction project in Peru was falling behind schedule, and the project manager
decided to assign a new construction manager for the construction site that was the
most
behind schedule. An experienced project manager from the United States with a
reputation
for meeting aggressive schedules was assigned to the construction site and
delegated the
authority to meet scheduled milestones.
The construction manager did not have experience outside the United States and
began
making decisions that would have worked in the United States but met cultural
resistance
in Peru. The project began falling further behind and another construction manager
was
assigned to the site.

The project manager must have the skills to evaluate the knowledge, skills, and
abilities of
project team members and evaluate the complexity and difficulty of the project
assignment.
Often project managers want project team members they have worked with in the past.
Because the project manager knows the skill level of the team member, project
assignments can be made quickly with less supervision than with a new team member
with
whom the project manager has little or no experience.

Delegation is the art of creating a project organizational structure with the work
organized
into units that can be managed. Delegation is the process of understanding the
knowledge,

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skills, and abilities needed to manage that work and then matching the team members
with
the right skills to do that work. Good project managers are good delegators.

Setting Individual Goals

The Myers-Briggs rates an individual’s preferences—not their limitations. It is
important to
understand that each individual can still function in situations for which they are
not best
suited. For example, a project leader who is more Thinking (T) than Feeling (F)
would need
to work harder to be considerate of how a team member who is more Feeling (F) might
react if they were singled out in a meeting because they were behind schedule. If a
person
knows their preferences and which personality types are most successful in each
type of
project or project phase, they can set goals for improvement in their ability to
perform in
those areas that are not their natural preference.

Another individual goal is to examine which conflict resolution styles are least
comfortable
and work to improve those styles so that they can be used when they are more
appropriate
than your default style.

KEY TAKEAWAYS
 Emotional intelligence is the ability to sense, understand, and effectively
apply
emotions.
 Two common tools for describing personality types are DISC (Dominance,
Influence, Steadiness, and Conscientiousness) and the Myers-Briggs Type
Indicator
(MBTI). The MBTI is the most common. It rates personalities on the position
between
extremes of four paired terms: Extroversion (E)-Introversion (I), Sensing (S)-
Intuition
(I), Thinking (T)-Feeling (F), and Judging (J)-Perceiving (P).
 Leadership styles are usually related to the personality of the leader. The
type of
leadership style that is most effective depends on the complexity and the phase
of the
project.

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 Negotiation and conflict resolution require skill at listening and an
understanding
of emotional intelligence and personality types.
 Delegation is the art of creating a project organizational structure that
can be
managed and then matching the team members with the right skills to do that
work.
 Individual goals can be set for improving abilities that are not natural
personality
strengths to deal with projects and project phases.

EXERCISES
1. Ability to sense and understand emotions is called _____ _______ (two
words).
2. A personality assessment tool that is commonly used that identifies
preferences
between pairs of terms is the MBTI, or more commonly known as the ________-
________.
3. What is emotional intelligence?
4. What do the letters INTJ stand for in a Myers-Briggs personality profile?
5. How does delegation involve the organization and its people?

Internalize your learning experience by preparing to discuss the following.

Identify which leadership style you think is most suitable for your
personality and
which is least suitable. Next, identify a level of project complexity or
project phase
where your preferred style is least suitable. Describe an individual goal and
how you
might pursue that goal for strengthening your ability to lead on that type of
project or
during that phase.

[1] Daniel Goleman, Emotional Intelligence (New York: Bantam Books, 1995).

[2] Robert K. Cooper and Ayman Sawaf, Executive EQ, Emotional Intelligence in
Leadership and
Organizations (New York: Perigree Book, 1997), xiii.

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[3] Robert Tannenbaum and Warren Schmidt, “How to Choose a Leadership
Pattern,” Harvard
Business Review 36 (1958): 95–101.
[4] Harold Leavitt, Corporate Pathfinders (New York: Dow-Jones-Irwin and Penguin
Books,
1986).
[5] James MacGregor Burns, Leadership (New York: Harper & Row, 1978).
[6] Fred E. Fiedler, “Validation and Extension of the Contingency Model of
Leadership
Effectiveness,”Psychological Bulletin 76, no. 2 (1971): 128–48.
[7] Qian Shi and Jianguo Chen, The Human Side of Project Management: Leadership
Skills (Newtown Square, PA: Project Management Institute, Inc., 2006), 4–11.
[8] Albert A. Einsiedel, “Profile of Effective Project Managers,” Project
Management Journal 18
(1987): 5.
[9] Barry Z. Posner, “What It Takes to Be a Good Project Manager,” Project
Management
Journal 18 (1987): 32–46.
[10] Vijay K. Verma, Human Resource Skills for the Project Manager (Sylvia, NC: PMI
Publications, 1996), 145–75.
[11] David Whetton and Kim Cameron, Developing Management Skills (Upper Saddle
River, NJ:
Pearson Education, 2005).

5.2 Working with Groups and Teams

LEARNING OBJECTIVES
1. Describe the value of trust and how it relates to contracts and complex
projects.
2. Identify four types of trust.
3. Describe how a project manager can build trust.
4. Identify three common meeting types and then describe how they differ.
5. Identity types of teams.
6. Describe the HUMM method of measuring project performance.
7. Describe the importance of developing a project story.

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A team is a collaboration of people with different personalities that is lead by a
person with
a favored leadership style. Managing the interactions of these personalities and
styles as a
group is an important aspect of project management.

Trust
Trust is the foundation for all relationships within a project. Without a minimum
level of
trust, communication breaks down, and eventually the project suffers in the form of
costs
increasing and schedules slipping. Often, when reviewing a project where the
performance
problems have captured the attention of upper management, the evidence of problems
is
the increase in project costs and the slippage in the project schedule. The
underlying cause
is usually blamed on communication breakdown. With deeper investigation, the
communication breakdown is associated with a breakdown in trust.

Filters
On projects, trust is the filter through which we screen information that is shared
and the
filter we use to screen information we receive. The more trust that exists, the
easier it is for
information to flow through the filters. As trust diminishes, the filters become
stronger and
information has a harder time getting through, and projects that are highly
dependent on
an information-rich environment will suffer from information deprivation.

Contracts and Trust Relationships

The project typically begins with a charter or contract. A contract is a legal

agreement that
includes penalties for any behavior or results not achieved. Contracts are based on
an
adversarial paradigm and do not lend themselves to creating an environment of
trust.
Contracts and charters are necessary to clearly establish, among other things, the
scope of
the project, but they are not conducive to establishing a trusting project culture.

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 A relationship of mutual trust is less formal but vitally important. When a
person or team
enters into a relationship of mutual trust, each person’s reputation and self-
respect are the
drivers in meeting the intent of the relationship. A relationship of mutual
trust within the
context of a project is a commitment to an open and honest relationship. There
is nothing
that enforces the commitments in the relationship except the integrity of the
people
involved. Smaller, less complex projects can operate within the boundaries of
a legal
contract, but larger, more complex projects must develop a relationship of
mutual trust to
be successful.

Types of Trust

Svenn Lindskold [1] describes four kinds of trust:

1. Objective credibility. A personal characteristic that reflects the
truthfulness of an
individual that can be checked against observable facts.
2. Attribution of benevolence. A form of trust that is built on the
examination of the
person’s motives and the conclusion that they are not hostile.
3. Nonmanipulative trust. A form of trust that correlates to a person’s
self-interest and
the predictability of a person’s behavior in acting consistent in that self-
interest.
4. High cost of lying. The type of trust that emerges when persons in
authority raise the
cost of lying so high that people will not lie because the penalty will be too
high.

Creating Trust

Building trust on a project begins with the project manager. On complex

projects, the
assignment of a project manager with a high trust reputation can help
establish the trust
level needed. The project manager can also establish the cost of lying in a
way that
communicates an expectation and a value for trust on the project. Project
managers can
also assure that the official goals (stated goals) and operational goals
(goals that are

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reinforced) are aligned. The project manager can create an atmosphere where
informal
communication is expected and reinforced.

The informal communication is important to establishing personal trust among team

members and with the client. Allotting time during project start-up meetings to
allow team
members to develop a personal relationship is important to establishing the team
trust.
The informal discussion allows for a deeper understanding of the whole person and
creates
an atmosphere where trust can emerge.

High Cost of Lying in a Charleston Project

On a project in Charleston, South Carolina, the client was asking for more and more
backup
to information from the project. The project manager visited the client to better
understand the reporting requirements and discovered the client did not trust the
reports
coming from the project and wanted validating material for each report. After some
candid
discussion, the project manager discovered that one of the project team members had
provided information to the client that was inaccurate. The team member had made a
mistake but had not corrected it with the client, hoping that the information would
get lost
in the stream of information from the project.

The project manager removed the team member from the project for two main reasons.
The project manager established that the cost of lying was high. The removal
communicated to the project team an expectation of honesty. The project manager
also
reinforced a covenant with the client that reinforced the trust in the information
the
project provided. The requests for additional information declined, and the trust
relationship between project personnel and the client remained high.

Small events that reduce trust often take place on a project without anyone
remembering
what happened to create the environment of distrust. Taking fast and decisive
action to
establish a high cost of lying, communicating the expectation of honesty, and
creating an

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atmosphere of trust are critical steps a project manager can take to ensure the
success of
complex projects.

Project managers can also establish expectations of team members to respect

individual
differences and skills, look and react to the positives, recognize each other’s
accomplishments, and value people’s self-esteem to increase a sense of the
benevolent
intent.

Managing Team Meetings

Team meetings are conducted differently depending on the purpose of the meeting,
the
leadership style that is appropriate for the meeting, and the personality types of
the
members of the team.

Action Item Meetings

Action item meetings are short meetings to develop a common understanding of what
the
short-term priorities are for the project, individual roles, and expectations for
specific
activities. This type of meeting is for sharing, not problem solving. Any problems
that
emerge from the discussion are assigned to a person, and another meeting is
established to
address the issue. Action item meetings focus on short-term activities, usually
less than a
week in duration.

The action item meeting is fact based and information oriented. It is a left-brain-
type focus.
The action item meeting has very little dialogue except to ask clarification
questions. If
discussion is needed or disagreement is not easily resolved, another problem-
solving
meeting is established to deal with that issue. On smaller topics, that meeting
might take
place immediately after the action item meeting and only include those people with
an
interest in the outcome of the discussion.

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The project manager keeps the successful action item meeting short in duration and
focused on only those items of information needed for the short-term project plan.
The
project manager will restate the common understandings of what activities are
priorities
and who will be responsible for the activities. Often these meetings can include a
review of
safety procedures or security procedures when these issues are important to the
project.
The leadership approach to action item meetings focuses on data, actions, and
commitments. Although the project manager may observe stresses between project team
members or other issues, they are not addressed in this meeting. These are fact-
based
meetings. If issues begin to arise between people, the project manager will develop
other
opportunities to address these issues in another forum. Using the Myers-Briggs
descriptions, team members who favor thinking more than feeling and judging more
than
perceiving are more comfortable with this type of meeting.

Management Meetings

Management meetings are longer in duration and are focused on planning. They are
oriented toward developing plans, tracking progress of existing plans, and making
adjustments to plans in response to new information.

These meetings include focused discussion on generating a common understanding of

the
progress of the existing plan. This discussion is based on quantitative information
provided
on the progress of the schedule and other data, but the discussion is qualitative
in
evaluating the data to develop a more complete understanding of the data. The
experience
and opinions of the project leaders are solicited, and disagreement about meaning
of the
data is even encouraged to develop a deeper understanding of the data. Through this
discussion, a common understanding of the status of the project should emerge, and
the
project manager invites discussion, includes people to offer their thoughts, and
assures that

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 disagreements are positive discussions about interpretation of the information
and that
disagreements do not become personal.

Management meetings also focus on developing midterm goals. For larger, more
complex
projects, the goals may be monthly or even quarterly. For smaller or less
complex projects,
weekly goals will provide the focus. The project manager focuses the discussion
on the
broad priorities for the next period and includes all the functional leaders in
the discussion.
The goals that emerge from the discussion should represent a common
understanding of
the priorities of the project for the next term.

For example, during the early phases of a project, the team is focused on
developing a
conceptual understanding of the project. A major milestone on complex projects
is typically
the completion of the conceptual plan. The project manager would lead a
discussion on
what needs to be accomplished to meet the project milestone and asks what
potential
barriers exist and what key resources are needed. From the discussion, the
project team
develops a few key goals that integrate the various functions of the project
team and focus
the team on priorities.

The following are some examples of goals during the conceptual phase:

 Developing a list of the procurement long lead items and defining

critical dates
 Developing a human resources plan that identifies critical positions
 Developing and building agreement with the client on the project scope
of work

Each of these goals is measurable and time framed. They can be developed as
positive
motivators and will take the project leaders and most of the project team to
accomplish.
They develop a general understanding of the priorities and are easy to
remember.

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Management meetings are a combination of left-brain thinking, which is fact based,
and
right-brain thinking, which is creative and innovative. Using the Myers-Briggs
terminology,
team members who prefer feeling over thinking and perceiving over judging can
contribute
ideas and perspectives on the project that the more fact-oriented members might
miss.

The project manager allows and encourages conversation in developing and evaluating
the
goals but focuses the discussion on the goals and obstacles. Management meetings
take on
a different focus during the month. Meetings at the beginning of the month spend
time
addressing the progress and potential barriers to the goals developed the previous
month.
During the middle of the month, the project manager leads the team to develop next
month’s goals as the team also works on the current month’s goals. Toward the end
of the
month as the goals for the month are accomplished, the meeting focuses more on the
next
month, enabling the team to remain goal focused during the life of the project.

Management meetings are also an opportunity to discover obstacles to goal

achievement.
The project team reallocates resources or develops alternative methods for
accomplishing
the goals. As the project team discusses the progress of project goals, the project
manger
explores possible obstacles and encourages exposing potential problems in achieving
goals.
The project manager focuses the team on finding solutions and avoids searching for
blame.

The project manager uses a facilitative leadership approach, encouraging the

management
team to contribute their ideas, and builds consensus on what goals will bring the
appropriate focus. The project manager keeps the focus on developing the goals,
tracking
progress, identifying barriers, and making adjustments to accomplish the management
goals. Although there are typically meetings for scheduling and procurement and
other
meetings where goals are established and problems solved, the management meeting
and
the goal development process create alignment among the project leadership on the
items
critical to the project’s success.

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Leadership Meetings

Leadership meetings are held less frequently and are longer in length. These
meetings are
used by the project manager to reflect on the project, to explore the larger issues
of the
project, and to back away from the day-to-day problem solving. The project manager
will
create a safe environment for sharing thoughts and evaluations of issues that are
less data
oriented. This is a right-brained, creative meeting that focuses on the people
issues of the
project: the relationship with the client, vendors, and project team. Team members
who
favor feeling, perceiving, and intuition often contribute valuable insights in this
type of
meeting. The team might also share perceptions by upper management and perceptions
of
the community in which the project is being executed. Where the time frame for
action
item meetings is in weeks and management meetings is in months, the time frame for
leadership meetings is longer and takes in the entire length and impact of the
project.

The project manager’s meeting management skill includes creating the right meeting
atmosphere for the team discussion that is needed. For discussions based on data
and facts,
the project manager creates the action item type meeting. The conversation is
focused on
sharing information and clarification. The conversation for leadership meetings is
the
opposite. Discussion is more open ended and focused on creativity and innovation.
Because
each type of meeting requires a different meeting atmosphere, mixing the purposes
of a
meeting will make it difficult for the project manager to develop and maintain the
appropriate kind of conversation.

Skilled project managers know what type of meeting is needed and how to develop an
atmosphere to support the meeting type. Meetings of the action item type are
focused on
information sharing with little discussion. They require efficient communication of
plans,
progress, and other information team members need to plan and execute daily work.
Management type meetings are focused on developing and progressing goals.
Leadership
meetings are more reflective and focused on the project mission and culture.

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 These three types of meetings do not cover all the types of project meetings.
Specific
problem-solving, vendor evaluation, and scheduling meetings are examples of
typical
project meetings. Understanding what kinds of meetings are needed on the
project and
creating the right focus for each meeting type is a critical project management
skill.

Types of Teams

Teams can outperform individual team members in several situations. The effort
and time
invested in developing a team and the work of the team are large investments of
project
resources, and the payback is critical to project success. Determining when a
team is
needed and then chartering and supporting the development and work of the team
is
another critical project management ability.

Teams are effective in several project situations:

 When no one person has the knowledge, skills, and abilities to either
understand or
solve the problem
 When a commitment to the solution is needed by large portions of the
project team
 When the problem and solution cross project functions
 When innovation is required

Individuals can outperform teams on some occasions. An individual tackling a

problem
consumes fewer resources than a team and can operate more efficiently—as long
as the
solution meets the project’s needs. A person is most appropriate in the
following situations:

 When speed is important

 When one person has the knowledge, skills, and resources to solve the
problem
 When the activities involved in solving the problem are very detailed

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 When the actual document needs to be written (Teams can provide input,
but
writing is a solitary task.)
In addition to knowing when a team is appropriate, the project manager must
also
understand what type of team will function best.

Functional Teams

A functional team refers to the team approach related to the project functions.
The
engineering team, the procurement team, and the project controls team are
examples of
functional teams within the project. On a project with a low complexity profile
that includes
low technological challenges, good team member experience, and a clear scope of
work, the
project manager can utilize well-defined functional teams with clear
expectations,
direction, and strong vertical communication.

Cross-Functional Teams

Cross-functional teams address issues and work processes that include two or
more of the
functional teams. The team members are selected to bring their functional
expertise to
addressing project opportunities.

Cross-Functional Teamwork on Concrete Project

A cross-functional project team in Tennessee was assigned to develop a project
approach
to procuring, delivering, and erecting precast concrete without storing the
concrete on the
site. Although the complexity of this goal is primarily related to delivering
the precast
concrete in a sequence that will allow erection from the delivery trucks, the
planning
involved coordination of the design, procurement, and project controls. Team
members
from each of these functions developed and tracked a plan to meet the project
goal. The
cross-functional team was successful in designing a process and executing the
plan in a way
that saved three weeks on the schedule and several thousand dollars in cost.

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Problem-Solving Teams

Problem-solving teams are assigned to address specific issues that arise during the
life of
the project. The project leadership includes members that have the expertise to
address the
problem. The team is chartered to address that problem and then disband.

Problem-Solving Teamwork on Equipment

Manufacturing
On a project in Indiana, a company selected to design and build a critical piece of
equipment began having financial problems, and the delivery of the equipment on the
date
needed by the project was at risk. A problem-solving team was chartered to assess
the
problem and develop a solution for the project. The team brought in some accounting
expertise from the parent company and assessed the status of the vendor. The
engineering
team assessed the current state of the design, and the construction team developed
an
alternative schedule to allow for a late delivery of the equipment. The team
developed a
plan to support the vendor with funds and expertise that allowed the project to
complete
on time. The problem-solving team was organized to address a specific problem,
developed
and executed a plan to address the problem, and then was disbanded.

Qualitative Assessment of Project Performance

Project managers should provide an opportunity to ask such questions as “What is

your gut
feeling about how the project going?” and “How do you think our client perceives
the
project?” This creates the opportunity for reflection and dialogue around larger
issues on
the project. The project manager creates an atmosphere for the team to go beyond
the data
and search for meaning. This type of discussion and reflection is very difficult in
the stress
of day-to-day problem solving.

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The project manager has several tools for developing good quantitative information—
based on numbers and measurements—such as the project schedules, budgets and budget
reports, risk analysis, and goal tracking. This quantitative information is
essential to
understanding the current status and trends on the project. Just as important is
the
development of qualitative information—comparisons of qualities—such as judgments
made by expert team members that go beyond the quantitative data provided in a
report.
Some would label this the “gut feeling” or intuition of experienced project
managers.

The Humm Factor is a tool developed by Russ Darnall [2] to capture the thoughts of

project
participants that are not reflected in the project reporting tools. The Humm Factor
derived
its name from a project manager who always claimed he could tell you more by
listening to
the hum of the project than reading all the project reports. The tool developed
qualitative
information for the project manager and leadership team.

The Humm Factor is essentially a survey that is developed during the early phases
of the
project. A series of questions are selected from a database of questions that are
designed to
elicit responses that require reflection and do not require data. “Do you feel the
project is
doing the things it needs to do to stay on schedule?” and “Is the project team
focused on
project goals?” are the types of questions that can be included in the Humm Factor.
The
qualitative responses are converted to a quantitative value as a score from 1 to
10.
Someone on the project or assigned to support the project is responsible for
distributing
the survey on a weekly or less frequent basis depending on the complexity profile
of the
project. A project with a high level of complexity due to team-based and cultural
issues will
be surveyed more frequently.

Responses are tracked by individual and by total project, resulting in qualitative

comparisons over time. The project team reviews the ratings regularly, looking for
trends
that indicate an issue may be emerging on the project that might need exploring.

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Humm Survey Uncovers Concern About a Vendor
On a project in South Carolina, the project surveyed the project leadership with a
Humm
Survey each week. The Humm Factor indicated an increasing worry about the schedule
beginning to slip when the schedule reports indicated that everything was according
to
plan. When the project manager began trying to understand why the Humm Factor was
showing concerns about the schedule, he discovered an apprehension about the
performance of a critical project supplier. When he asked team members, they
responded,
“It was the way they answered the phone or the hesitation when providing
information—
something didn’t feel right.”

The procurement manager visited the supplier and discovered the company was
experiencing financial problems and had serious cash flow problems. The project
manager
was able to develop a plan to help the supplier through the period, and the
supplier
eventually recovered. The project was able to meet performance goals. The Humm
Factor
Survey provided a tool for members of the project team to express concerns that
were
based on very soft data, and the project team was able to discover a potential
problem.

Another project team used the Humm Factor to survey the client monthly. The
completed
surveys went to a person who was not on the project team to provide anonymity to
the
responses. The responses were discussed at the monthly project review meetings, and
the
project manager summarized the results and addressed all the concerns expressed in
the
report. “I don’t feel my concerns are being heard” was one response that began
increasing
during the project, and the project manager spent a significant portion of the next
project
review meeting attempting to understand what this meant. The team discovered that
as the
project progressed toward major milestones, the project team became more focused on
solving daily problems, spent more time in meetings, and their workday was becoming
longer. The result was fewer contacts with the clients, slower responses in
returning phone
calls, and much fewer coffee breaks where team members could casually discuss the
project with the client.

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The result of the conversation led to better understanding by both the project team
and
client team of the change in behavior based on the current phase of the project and
the
commitment to developing more frequent informal discussion about the project.

Developing a Project Story

Every project develops a story. It is the short explanation that project team
members give
when asked about the project. This is also called the elevator speech, which is the
explanation a person would give if he or she were in the elevator with the CEO and
the CEO
asked him or her to describe the project. Project stories often express important
aspects of
the project and can create a positive picture of the project or one that is less
appealing.

A project story will develop, and creating a positive project story is a project
management
skill that helps the project. A positive project story is inviting to people and
helps with the
recruitment of talent to the project. A positive project story also helps when
services are
needed from functional departments within the company and in developing management
support for the project.

Creation of the project story is an active process. The project manager actively
sets out to
create the story. Every project, by definition, is unique. Creating the positive
story entails
identifying those unique aspects of the project and building a positive outcome.

Project Story of a Drug to Save Lives

A pharmaceutical project team in Colorado was building a plant to produce a drug
that
would save lives. The faster the plant was completed, the more lives would be
affected by
the drug. One story addressed the challenges of designing and building a plant in
record
time. A second story emerged: the balance of safety against speed. Safety
procedures
limited the number of subcontractors and people working in the same area.

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To accomplish the work, the project team found creative ways of accomplishing the
work
off-site and scheduling work to minimize safety problems while meeting aggressive
timelines. The story became the challenge. People identified with the challenge and
wanted
to be part of the success.

Building a Reputation for Project Completion

Speed
A project manager in South Carolina always challenged people with speed. He
identified the
last project with similar characteristics and challenged the team to beat the time
by weeks
or months. The story became, “If you want a project done on time, this is the
project team
you need.” The project manager created a spirit of competition and fun. The project
manager was a high-energy person, and the idea of finding a way to finish a project
early
seemed a natural outcome.

Every project manager can find the unique aspect of the project and build a sense
of
specialness about the project. The project becomes a good place to work, provides
the team
with a sense of accomplishment, and becomes the story created by the project
manager.

KEY TAKEAWAYS
 Trust is important to reduce delays caused by excessive filtering and fact
checking.
Contracts are specific about the project scope, but personal relationships of
mutual
trust are necessary on complex projects.
 Four types of trust are objective credibility, attribution of benevolence,
nonmanipulation, and a high cost of lying.
 To create trust, the project manager needs a reputation for trustworthiness
and
needs to align official goals with operational goals, establish a high cost of
lying, and
create an atmosphere of respect and benevolent intent.

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 Meeting types are action item, management, and leadership. Action item
meetings
focus on specific short-term priorities. Management meetings focus on
planning, and
leadership meetings focus on larger issues.
 The types of teams are functional, cross-functional, and problem solving.
 The Humm Factor measures project performance and uses a questionnaire to
identify qualitative information about project performance.
 A short statement of the purpose and character of the project is useful in
recruiting
and obtaining support for a project.

EXERCISES
1. A type of trust that is formed by observing that a person’s truthfulness
is
supported by observable facts is called ________ _________ (two words).
2. A type of trust that is formed by knowing that the other person would not
risk the
penalties for being untruthful is called the high cost of ________.
3. A type of trust that is formed by knowing that the other person is acting
in his or
her own self-interest is called ___-________ trust.
4. A type of trust that is formed by evaluating a person’s motives and
concluding that
they are not hostile is called an attribute of ________________.
5. To create trust, a manager should align official goals with ______ goals.
6. The Humm Factor is a method to collect ________ information about a
project that
indicates the “gut feeling” that the project team has about a project.
7. A short statement about the project that captures its purpose and
character that
could be relayed in less than a minute is called an _________ story.
8. How does lack of trust affect filtering of information, and how does that
affect the
project?
9. What are four types of trust?
10. How can a manager create trust?
11. What are three main meeting types and what are their characteristics?

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12. How do functional, cross-functional, and problem-solving teams differ from
each
other?
13. What is the purpose of the Humm Factor?

Internalize your learning experience by preparing to discuss the following.

Consider someone you met recently and whom you felt you could trust. Which of
the
four types of trust do you think you have for this person? Is there a
relationship of
mutual trust between you? If so, what would be an example of something each
of you
would trust the other to do? What would be an example of a project team
function or
type of team where this trust would be beneficial?

[1] Svenn Lindskold, “Trust Development, the GRIT Proposal, and the Effects of
Conciliatory Acts
on Conflict and Corporation,” Psychological Bulletin 85, no. 4 (1978): 772–93.
[2] Shari Caudron, “Industry’s Unsung Heroes,” Industry Week, December 4, 1995, 12–
16.

5.3 Creating a Project Culture

LEARNING OBJECTIVES
1. Describe how project culture is developed and enforced.
2. Describe how differences in culture between stakeholders can influence the
project.
3. Describe the role of innovation on projects.

Project managers have a unique opportunity during the start-up of a project. They
create a
project culture, something organizational managers seldom have a chance to do. In
most
organizations, the corporate or organizational culture has developed over the life
of the
organization, and people associated with the organization understand what is
valued, what
has status, and what behaviors are expected. Edgar Schein defined culture as a
pattern of

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 basic assumptions formed by a group on how to perceive and address problems
associated
with both internal adaptation and external integration. [1] Schein also
described
organizational culture as an abstract concept that constrains, stabilizes, and
provides
structure to the organization. At the same time, culture is being constantly
enacted, created,
and shaped by leadership behavior.

Characteristics of Project Culture

A project culture represents the shared norms, beliefs, values, and assumptions
of the
project team. Understanding the unique aspects of a project culture and
developing an
appropriate culture to match the complexity profile of the project are
important project
management abilities.

Culture is developed through the communication of

 the priority
 the given status
 the alignment of official and operational rules

Official rules are the rules that are stated, and operational rules are the
rules that are
enforced. Project managers who align official and operational rules are more
effective in
developing a clear and strong project culture because the project rules are
among the first
aspects of the project culture to which team members are exposed when assigned
to the
project.

Operational Rules on a Project in India

During the start-up of a project in India, members of the project team were
given a policy
that stated all travel expense claims must be submitted within three days of
completion of
travel. During the first few weeks, the administrative team began to understand
that this

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was a difficult policy to enforce without creating morale problems on the project.
Instead of
changing the official rule, it was seldom enforced. The official rules and
operational rules
differed.

Later on in the project, a worker was injured after crossing an area that was
marked as
unsafe. Workers indicated that they knew the official rules but it took too much
time to go
around the unsafe area. They assumed that official rules could be ignored if they
were
difficult to obey. The difference between official rules and operational rules of
the project
created a culture that made communication of the priorities more difficult.

In addition to official and operational rules, the project leadership communicates

what is
important by the use of symbols, storytelling, rituals, rewards or punishments, and
taboos.

Creating a Culture of Safety

A project manager in South America who wanted to create a strong safety culture on
a
construction project with significant safety concerns used several methods to
create the
desired culture. In the first meeting that project team members attended upon
joining the
project was a safety orientation. Members were issued a card—a symbol—after the
meeting granting permission to participate on the project. The project leadership
team told
stories of previous projects where people were fired for breaking safety rules and
often
warned that the fastest way to get fired on the project was to break a safety rule—
an
example of storytelling. Every project meeting started with a discussion of a
safety topic—a
ritual—and any discussion of lessening the safety rules was forbidden—taboo—and was
quickly and strongly cut off by the project leadership if it occurred.

Culture guides behavior and communicates what is important and is useful for
establishing
priorities. On projects that have a strong safety culture, team members feel free
to
challenge anyone who breaks a safety rule, even managers. The safety aspects of
culture
are stronger than the cultural aspects of the power of management.

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 Culture of Stakeholders
When project stakeholders do not share a common culture, project management
must
adapt its organizations and work processes to cope with cultural differences.
The following
are three major aspects of cultural difference that can affect a project:

1. Communications
2. Negotiations
3. Decision making
4.
Communication is perhaps the most visible manifestation of culture. Project
managers
encounter cultural differences in communication in language, context, and
candor.
Language is clearly the highest barrier to communication. When project
stakeholders do
not share the same language, communication slows down and is often filtered to
share only
information that is deemed critical. The barrier to communication can
influence project
execution where quick and accurate exchange of ideas and information is
critical.
The interpretation of information reflects the extent that context and candor
influence
cultural expressions of ideas and understanding of information. In some
cultures, an
affirmative answer to a question does not always mean yes. The cultural
influence can
create confusion on a project where project stakeholders share more than one
culture.

Culture Affects Communication in Mumbai

A project management consultant from the United States was asked to evaluate
the
effectiveness of a U.S. project management team executing a project in Mumbai,
India. The
project team reported that the project was on schedule and within budget.
After a project
review meeting where each of the engineering leads reported that the design of
the project
was on schedule, the consultant began informal discussions with individual
engineers and
began to discover that several critical aspects of the project were behind
schedule, and
without a mitigating strategy, the project would miss a critical window in the
weather

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between monsoon seasons. The information on the project flowed through a cultural
expectation to provide positive information. The project was eventually cancelled
by the
U.S.-based corporation when the market and political risks increased.

Not all cultural differences are related to international projects. Corporate

cultures and
even regional differences can create cultural confusion on a project.

Cultural Differences between American Regions

On a major project in South America that included project team leaders from seven
different countries, the greatest cultural difference that affected the project
communication
was between two project leaders from the United States. Two team members—one from
New Orleans and one from Brooklyn—had more difficulty communicating than team
members from Lebanon and Australia.

Innovation on Projects
The requirement of innovation on projects is influenced by the nature of the
project. Some
projects are chartered to develop a solution to a problem, and innovation is a
central
ingredient of project success. A project to develop a vaccine in response to a
recent flu
outbreak is an example of a project where innovation is important to achieving the
purpose
of the project.

Innovation is also important to developing methods of lowering costs or shortening

the
schedule. Traditional project management thinking provides a trade-off between
cost,
quality, and schedule. A project sponsor can typically shorten the project schedule
with an
investment of more money or a lowering of quality. Finding innovative solutions can
sometimes lower costs while also saving time and maintaining the quality.

Innovation on a Steel Plant Project

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On a project to design and build a plant to make steel using new technology, the
project
leadership was committed to generating cost savings on the project that would allow
needed technical modifications later on during the project. The project was in the
early
design phase, and the project leadership established a goal for generating $1
million in cost
saving suggestions. The goal was established in early fall, and the project manager
declared
that he would swim the lake on the day of the project review in February if the
project met
its goal.

A process was established to track cost saving ideas using highly visible green
paper for
documenting ideas, and a chart was placed on the project communication wall
recognizing
people and teams that submitted ideas. Each team was allocated a specific cost
savings
goal, and a team lunch was provided when the goals were met. The project manager
created a balance between the message that this is a serious goal and that the
project will
have some fun with the process.

On one occasion, the project manager talked with the electrical engineering lead to
understand why no suggestions were emerging from the electrical design team. The
electrical design team was struggling to maintain the project schedule and did not
have
time to focus on project contests. The project manager emphasized that the project
had
several goals, and generating the cost savings for the client was an important
project goal.

The electrical engineering lead gathered some senior electrical engineers into a
small
conference room, and for the next three hours, this impromptu team reviewed
electrical
drawings and concepts and began to generate ideas on how to accomplish the design
specifications and cut costs. The electrical engineering lead maintained a flip
chart in the
front of the conference room, and as soon as the team found enough savings to meet
the
electrical target, the team disbanded and went back to working on the electrical
design.

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The team exceeded the goal prior to the February project review. The project
manager
swam the lake during an enjoyable project celebration.

Innovation is a creative process that requires both fun and focus. Fun reduces the
amount
of stress on the project. Stress is a biological reaction to perceived threats.
Stress, at
appropriate levels, can make the work environment interesting and even challenging.
Many
people working on projects enjoy a high-stress, exciting environment. When the
stress level
is too high, the biological reaction increases blood flow to the emotional parts of
the brain
and decreases the blood flow to the creative parts of the brain, making creative
problem
solving more difficult. Project managers recognize the benefits of balancing the
stress level
on the project with the need to create an atmosphere that enables creative thought.

Stress Managed on Steel Project

The electrical lead engineer on the steel project was able to create the
environment for the
electrical team to focus on the electrical design and explore alternative designs
that could
generate cost savings. The electrical lead also saw the investment in creating cost
savings
as an addition to the job. The electrical team stopped to contribute to the project
goal and
went back to the design work once the electrical cost-saving target was met.

Exploring opportunities to create savings takes an investment of time and energy,

and on a
time-sensitive project, the project manager must create the motivation and the
opportunity
for creative thinking.

KEY TAKEAWAYS
 Project culture is developed by communicating priority, status, and the
alignment
of official and operational rules. It is enforced through use of symbols,
storytelling,
rituals, rewards or punishments, and taboos.
 Differences in culture between stakeholders can affect communications,
negotiations, and decision making.

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 Innovation can be the main focus of the project, or it can be used to
achieve
improvement in goals that are usually mutually exclusive, such as lowering
costs and
shortening schedule.

EXERCISES
1. The project ________ is developed by communicating what is important,
communicating what gives status, and aligning operational and official rules.
2. How can innovation achieve improvement in goals?

Internalize your learning experience by preparing to discuss the following.

Describe a team project with which you are familiar where the objective was to
find an
innovative solution. What was the level of stress and how was it managed to
support
an innovative atmosphere?

[1] Edgar Schein, “Organizational Culture,” American Psychologist 45 (1990): 109–

19.

5.4 Exercises
Exercises at the end of the chapter are designed to strengthen your understanding
and
retention of the information recently acquired in the chapter.

ESSAY QUESTIONS
Write several paragraphs to provide more in-depth analysis and consideration
when
answering the following questions.

1. Describe two situations that involve delegating work to other people. The
first is a
positive example that worked well, and the other is one that did not. Analyze
the
reasons for the success and failure of the two examples using the information
about
trust and personality types from this chapter.

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2. Choose a project with which you are familiar that does not have a good
elevator
story. Attempt to create one and explain how it could be used to promote the
project.

DISCUSSION
The exercises in this section are designed to promote exchange of information
among
students in the classroom or in an online discussion. The exercises are more
open
ended, which means that what you find might be completely different from what
your
classmates find, and you can all benefit by sharing what you have learned.

1. Describe a project where trust or distrust became a major factor in the

success or
failure of the project. Using the four kinds of trust described by Lindskold,
explain how
trust was formed or lost. Consider the descriptions offered by other students
of their
trust experiences and identify a situation where one of the same types of
trust was
established or lost. Compare the effects on both projects.
2. Describe a project where differences in culture affected communications,
negotiations, or decision making.

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 Chapter 6
Communication Technologies
Projects require teamwork, and team members must communicate with each other in a
variety of ways. The documents they produce must be collected, distributed, and
stored in
an appropriate manner to assure timely and accurate communication between team
members. This process is often assisted by a variety of technologies and computer
software
products. Communication technology can facilitate faster and better communication,
or it
can become a barrier if the technologies are not well understood and applied
appropriately.

6.1 Types of Communication
LEARNING OBJECTIVES
1. Identify characteristics and examples of synchronous communication.
2. Identify characteristics and examples of asynchronous communication.
3. Identify questions to answer when considering new communications
technologies.

Completing a complex project successfully requires good communication among team

members. If those team members work in the same building, they can arrange regular
meetings, simply stop by each other’s office space to get a quick answer, or even
discuss a
project informally at other office functions. Many projects are performed by teams
that
interact primarily through electronic communication and are, therefore, called
called
virtual teams. [1] To avoid miscommunication that can harm trust and to include
team
members in a project culture, the project team needs a plan for communicating
reliably and
in a timely manner. This planning begins with understanding two major categories of
communication.

Synchronous Communications
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 If all the parties to the communication are taking part in the exchange at the
same time, the
communication is synchronous. A telephone conference call is an example of
synchronous
communication. When the participants are not interacting at the same time, the
communication is not synchronous, or asynchronous.

The following are examples of synchronous communications:

 Live meeting. Gathering of team members at the same location.

 Audio conference. A telephone call between two individuals or a
conference call
where several people participate.
 Computer-assisted conference. Audio conference with a connection
between
computers that can display a document or spreadsheet that can be edited by both
parties.
 Video conference. Similar to an audio conference but with live images
of the
participants. Some laptop computers have built-in cameras to facilitate video
conferencing,
as shown in Figure 6.1 "Video Conferencing by Laptop".
 IM (instant messaging). Exchange of text or voice messages using pop-up
windows
on the participants’ computer screens, as shown in Figure 6.2 "Instant
Messaging Pop-Up
Window".

Figure 6.2 Instant Messaging Pop-Up Window

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 Texting. Exchange of text messages that are 160 characters or fewer
between mobile
phones, pagers, or personal digital assistants (PDAs)—devices that hold a
calendar, a
contact list, a task list, and other support programs. See Figure 6.3 "Texting
via Cell Phone".

Time Zones

The worldwide communication network makes it possible to assemble project teams

from
anywhere in the world. Most people work during daylight hours, which can make
synchronous meetings difficult if the participants are in different time zones,
where they
start, end, and take meal breaks at different times. It can be an advantage in
some
circumstances. For example, if something must be done by the start of business
tomorrow,
team members in Asia can work on the problem during their normal work hours
while
team members in North America get some sleep.

As the earth turns, the sun appears to move across the sky from east to west.
Local noon
occurs when the sun is at its highest position in the sky. Cities and countries
to the north or
south of each other all observe local noon at the same time. For example, noon
in New York
occurs at the same time as it does in Bogotá , Colombia, in South America. Be
aware that
many well-educated people in the United States think of South America as
directly south of

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North America. As you can see in Figure 6.4 "World Time Zones", most of South
America is
one or two time zones east of the United States.

To prevent confusion between a.m. and p.m., times are given using a twenty-four-
hour
clock. Noon is 12:00 and 1 p.m. is 13:00, and parts of an hour are divided by
colons. For
example, 13:25:21 is thirteen hours, twenty-five minutes, and twenty-one seconds.

Local Time

Local time is compared to the time zone that is centered at the historically
significant naval
observatory at Greenwich, England. The time at that location
is Greenwich Mean Time (GMT). More recent references use UT
for Universal Time (UT) instead of GMT.

Conference Call between New York and Paris

A project manager in New York is five time zones west of the reference zone, so the
time
is given as UT –5 (or GMT –5). If it is noon in the reference zone, it is 7 a.m.
(five hours
earlier) in New York. The manager would like to contact a project team member in
Paris,
France. Paris is one time zone west of the reference zone (UT +1 or GMT +1). If it
is noon
(12:00) in the reference zone, it is 13:00 (1 p.m.) in Paris.
This means that there is a six-hour difference between New York and Paris. If the
project
manager waits until after lunch to place the call (1 p.m. in New York), it might be
too late in
the day in Paris (7 p.m.) to reach someone.

Asynchronous Communications

Getting a team together at the same time can be a challenge—especially if they are
spread
out across time zones. Many types of communication do not require that the parties
are

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present at the same time. This type of communication is not synchronous; it is
asynchronous. There are several choices of asynchronous communications.

Mail and Package Delivery

Many companies prefer that final contracts are personally signed by an authorized
representative of each party to the agreement. If several signatures are required,
this can
take weeks to get all the signatures if the contracts are transferred by the postal
service. If
this process is holding up the start of the project, you can use an overnight
delivery service
to minimize the time spent transferring the documents.

Fax

A telefacsimile (fax) machine is a device that scans a document a narrow band at a

time
converting it into tones that can be conveyed over traditional telephone lines to a
receiving
device that reproduces a facsimile—exact duplicate—of the document. A fax machine
typically has a paper feeder that can be used for feeding multiple-page documents,
a
telephone key pad and handset, and a status display, as shown in Figure 6.5 "Fax
Machine".

Transmission rates of fax machines are typically limited by the use of traditional
telephone
lines. The data transmission uses the same method as a dial-up computer modem.
AGroup 3 fax machine has a maximum data rate of 14.4 kilobits per second (Kbps),
but if
the phone connection is poor, it will drop down to lower speeds automatically until
it can
establish a reliable connection between machines.
The Group 3 fax machine digitizes data in a form that is compatible with computers
and the
fax function is often integrated with other computer functions. A multifunction
device, such
as the one shown in Figure 6.6 "Multifunction Printer, Scanner, Fax, and Copier",
can scan a
document and save it as an image, send it as a fax, or print multiple copies.

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 Fax machines have been around a long time and enjoy a high level of trust for
transmitting
documents accurately. In many countries, a fax of a signed contract is legal,
but a computer-
scanned image is not.

Electronic Mail

Electronic mail (e-mail) is widely used to coordinate projects and to

communicate between
team members. It has several valuable characteristics for project management:

 Copies can be sent to a list of team members.

 A preconference-call e-mail can list the agenda items of the conference
call.
 A postconference e-mail can summarize the results of the discussion on
each topic.
 Messages can be saved to document the process in case of a
misunderstanding or
miscommunication.
 Files can be attached and distributed.

Project Log and Web Log (Blog)

A Web log is typically called a blog. It is an online journal that can be

private, shared by
invitation, or made available to the world. Some project managers keep a
journal in which
they summarize the day’s challenges and triumphs and the decisions they made.
They
return to this journal at a later date to review their decision-making process
after the
results of those decisions are known to see if they can learn from their
mistakes. Many
decisions in project management are made with incomplete knowledge, and
reflecting on
previous decisions to develop this decision-making skill is important to growth
as a project
manager.

Really Simple Syndication (RSS)

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 Some projects are directly affected by external factors such as political
elections, economic
trends, corporate mergers, technological or scientific breakthroughs, or
weather. To keep
informed about these factors, you can subscribe to online news sources. A
method that
facilitates this process isReally Simple Syndication (RSS). To use an RSS feed,
team
members download a free news reader on the Internet. Web pages with RSS news
feeds
have labeled links, as shown in Figure 6.7 "Link to RSS Feed on a Web Page".
Figure 6.7 Link to RSS Feed on a Web Page

If the user clicks on the RSS feed, news from the Web site is automatically
sent to the user’s
news reader. The news reader can be set to filter the news for key words to
limit the stories
to those that are relevant to the project.

The following are examples of asynchronous communications:

 Mail and package delivery. Transfer of objects and contracts that need
signatures.
 Fax. Document transmittal over telephone. Facsimiles are accepted for
some
documents.
 Electronic mail (e-mail). Text messages with attachments can be
distributed and
managed by computer programs.
 Web log (blog). An online journal may be used to record events,
thoughts, and
lessons learned.
 Really Simple Syndication (RSS). News feeds that push relevant content
to a reader to
keep the manager informed of new events that could affect the project.


Assessing New Communication Technologies

New technologies for communicating electronically appear with increasing

frequency.
Using a new technology that is unfamiliar to the team increases the technology
complexity,

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 which can cause delays and increase costs. To decide if a new technology should
be
included in a communications plan, seek answers to the following questions:
 Does the new communication technology provide a competitive advantage
for the
project by reducing cost, saving time, or preventing mistakes?
 Does the project team have the expertise to learn the new technology
quickly?
 Does the company offer support such as help desk and equipment service
for new
communication technology?
 What is the cost of training and implementation in terms of time as
well as money?

KEY TAKEAWAYS
 Synchronous communications take place when all the parties are present
at the
same time. Examples are telephone calls and video conferencing.
 Asynchronous communications take place when the parties are not present
at
the same time. Examples are e-mail, fax, package delivery, blogs, and RSS
feeds.
 Determine if a new technology can save time, reduce cost, or prevent
mistakes
and if the increased complexity can be handled by the team and support
staff for
an affordable cost in time and money.

EXERCISES
1. Communications methods that do not require both parties to participate
at the
same time are called _______________.
2. A telephone call is an example of __________ communication.
3. An exchange of e-mail messages is an example of _______________
communication.
4. A __________ is an online journal used to share an individual’s
thoughts and
experiences.
5. A video conference is an example of _____________ communications.
6. What are two examples of synchronous communications technologies that
you
have used?

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7. What are two examples of asynchronous communications technologies that
you have used?
8. What is a virtual team?
9. Where is the reference time zone and why is it sometimes referred to as
both
GMT and UT?
10. Why are fax machines still used for legal documents?

Internalize your learning experience by preparing to discuss the following.

If you were managing a functional team that included people from three other
countries, which synchronous communications technologies would you include in
your communications plan and for what purposes? Which asynchronous
technologies would you use and for what purposes? What new technologies would
you consider?

[1] Business Dictionary, s.v. “Virtual

Team,” http://www.businessdictionary.com/definition/virtual-team.html (accessed
January 27,
2010).

6.2 Selecting Software
LEARNING OBJECTIVES
1. Identify the types of software that are appropriate for projects of low
complexity.
2. Identify the types of software that are appropriate for projects of medium
complexity.
3. Identify the types of software that are appropriate for projects of high
complexity.
4. Describe strategies for sharing documents that can be edited by a team.

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 Part of a communications plan is determining the type of computer software that
will be
used to create documents, spreadsheets, diagrams, and reports. The choice of
software is
related to the complexity of the project.

Simple Projects

Basic projects can be managed using some of the features available in general-
purpose
software that is available in most offices.

Word Processing

Even the most basic project will generate numerous documents using word
processing
software. A communications plan can specify standards for these documents that
makes it
easier to create, edit, combine, store, and retrieve the documents. Document
standards
include the following:

 Specifying the file format

 Using templates for commonly used forms

File Format

Word processing software programs display a document on a computer’s screen and

allow
the user to enter and edit text. When the file is saved to a storage device,
the text and all the
various formatting such as font and font size are converted to a code for
efficient storage.
The code varies from one word processing program to another and even between
releases
of the same program.
The most common word processing program, by a wide margin, is Microsoft Word
(MS
Word). Several releases of MS Word run on the Windows operating system and on
the
Macintosh operating system. Versions of MS Word released prior to 2007 save
files in a
proprietary format. The format is indicated by a period and a three-letter
extension—.doc

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—that is automatically attached to the file when it is saved. Beginning with MS
Word 2007
for Windows and MS Word 2008 for Macintosh, files are saved using a different
format that
is indicated by a period and a four-letter extension—.docx—that identify the newer
format.
Almost all word processing programs have the ability to save files in the .doc file
format,
and it is a common standard for word processing files. Newer versions of word
processing
programs, including MS Word 2007 and MS Word for Mac 2008, can save files in the
older .doc format. There are new features in MS Word 2007—such as the ability to
format
citations in a variety of styles, including APA, MLA, and Chicago—that are lost
when the file
is saved in the .doc format. Older versions of MS Word can be adapted to read the
newer
.docx file formats by downloading and installing a compatibility program that is
available at
no cost from Microsoft’s Web site. Display of document file extensions is hidden by
default
in the Windows operating system. They can be displayed by turning off this feature.
Instructions for displaying the file extensions are available from the operating
system’s
help menu. In the Windows Vista operating system, the option is found on the
Control
Panel, in Appearance and Personalization, in Folder Options, on the View tab, under
Advanced Settings, as shown in Figure 6.8 "Displaying File Name Extensions".
Figure 6.8 Displaying File Name Extensions

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When a list of files is displayed in a dialog box, choose the Details option. In
Windows Vista,
the Details option is on the View button, as shown in Figure 6.9 "File Extensions
Displayed
in Details View".

Figure 6.9 File Extensions Displayed in Details View

Styles

The combination of formatting, including font, font size, font color, shading, and
other
attributes used to display a segment of text and to identify its level of
importance, is called
a style. A style can be given a name and applied repeatedly to different portions
of a
document. Predefined styles are available in MS Word 2007 on the ribbon, on the
Home
tab, in the Styles group, as shown inFigure 6.10 "Style Choices". Users can define
their own
styles and give them names. Some organizations prefer that all of their documents
have
similar fonts and styles for headings, body text, and figure captions.

Figure 6.10 Style Choices

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Outlines

An outline of a document consists of topic headings and subheadings, and it is

useful when
organizing or reorganizing a document. The Styles group in MS Word 2007 includes
predefined styles for nine levels of headings. In addition to using different
fonts, each
heading is assigned a level of importance. A document that uses headings with
assigned
levels can be viewed in the Outline view, such as the book outline shown in Figure
6.11
"Outline View in MS Word 2007". In this view, the level of detail displayed in the
outline is
selected to display the first two levels of the outline. The headings and the
hidden text
associated with each heading can be moved by selecting and dragging headings from
one
location in the outline to another.

Figure 6.11 Outline View in MS Word 2007

Templates

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If a particular type of document will be used repeatedly, it might be worth the
time to
create an example document—a template—that is formatted using the appropriate
styles
with blanks or placeholder text where the user can insert the information that
describes a
particular situation. A variety of templates are already available for download at
no
additional cost. For example, when a new document is created in Microsoft Word
2007,
there is an option to choose a template such as the invoice template shown
in Figure 6.12
"Standardized Document Used as a Template".

Figure 6.12 Standardized Document Used as a Template

The template may be customized and used repeatedly for all the documents of that
type, or
the organization can design its own.

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Diagrams

Reporting relationships and the flow of work are often described using diagrams
that
consist of boxes connected by arrows. Recent releases of popular word processing
programs include drawing tools that can be used for basic diagrams. In MS Word
2007, a
variety of shapes and connectors are available on the Insert tab, in the
Illustrations group
on the Shapes button, as shown in Figure 6.13 "Menu of Diagramming Shapes and
Connectors in Word 2007".

Figure 6.13 Menu of Diagramming Shapes and Connectors in Word 2007

Adaptable connecting lines and arrows can be used that redraw automatically when
the
shapes are moved. This feature facilitates rapid revisions when the shapes must be
moved,
because the connecting arrows do not need to be redrawn.

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A feature named SmartArt was introduced in Microsoft Office 2007 that has a variety
of
charts that can be used for displaying organization and relationships that use more
sophisticated and artistic graphics, as shown in Figure 6.14 "SmartArt Feature in
Microsoft
Word".

Figure 6.14 SmartArt Feature in Microsoft Word

Spreadsheets

Another commonly available software creates a spreadsheet—a display of data in row

and
column format—in which financial or numerical data can be manipulated. The
intersection
of the rows and columns are cells into which numbers, text, dates, and formulas can
be

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entered. The formulas can utilize values found in other cells and display the
results in the
cell in place of the formula. If the value in a cell to which the formula refers is
changed, all
the formulas that use that cell’s value are immediately recalculated. This feature
makes it
convenient to examine several options quickly. Spreadsheets are often used to
manage data
on simple projects instead of a dedicated database or project management software.

Organizing Data in Rows and Columns

If a spreadsheet is used to store data, such as a list of project activities or a

list of expenses,
it is prudent to arrange the data in some way that would be used by more
sophisticated
data management software. Most data management programs arrange data in such a way
that each type of data is represented by a column with a label at the top and each
row
contains the specific data for one type of item. A collection of data arranged in
rows and
columns is a table. For example, a list of expenses would be arranged so that
individual
expenses are recorded on each row, and each column would be a type of information
related to the expenses, as shown in Figure 6.15 "Expenses Arranged in a Table in a
Spreadsheet".

Figure 6.15 Expenses Arranged in a Table in a Spreadsheet

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File Format

The most common spreadsheet program, by a wide margin, is Microsoft Excel (MS
Excel).
There have been several releases of MS Excel that run on the Windows operating
system
and on the Macintosh operating system. Versions of MS Excel released prior to 2007
save
files in a proprietary format. The format is indicated by a period and a three-
letter
extension—.xls—that is automatically attached to the file when it is saved.
Beginning with
MS Excel 2007 for Windows and MS Excel 2008 for Macintosh, files are saved using a
different format that is indicated by a period and a four-letter extension—.xlsx—
that
identifies the newer format.

Almost all spreadsheet programs have the ability to save files in the .xls file
format, and it is
a common standard for spreadsheet files. Newer versions of spreadsheet programs,
including MS Excel 2007 and MS Excel for Mac 2008 can save files in the older .xls
format.
There are a few new basic features in MS Excel 2007 that would be lost by saving
files to
the older file format.

Using a Spreadsheet to Manage Project Data

If the data in the spreadsheet is arranged in simple rows of the same type of data,
it can be
manipulated to provide reports for basic projects.

If one or more of the columns in a table contain labels, identification numbers, or

other
descriptions, those labels can be used to specify sorting and filtering options.
For example,
if the spreadsheet has a list of expenses, the rows of data can be sorted in
decreasing or
increasing value by one of the data types such as the due date or the amount of the
expense.
The display can be restricted—filtered—to display only those rows that meet
criteria
specified by the user. For example, the table could be filtered to display the
expenses for a

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particular department that were incurred between two dates. This ability
facilitates the
preparation of monthly progress reports and budgets.

In MS Excel 2007, the sorting and filtering options are on the Data tab, in the
Sort and Filter
group under the Sort or Filter button. Once a filter is applied, option buttons are
placed at
the top of each column to facilitate changes in the sorting or filtering options.
For example,
the list of expenses shown in the previous figure can be sorted by the labels in
the Category
column and filtered to show only costs that are more than $20, as shown in Figure
6.16
"Sorting and Filtering in Microsoft Excel 2007".

Figure 6.16 Sorting and Filtering in Microsoft Excel 2007

Subtotals

If the user wants to find a subtotal of the values that belong in a particular
group, the
groups must be identified by a label in one of the columns. Finding subtotals is a
two-step
process. First, the table is sorted by that column to bring all the rows in each
group
together. Next, the subtotal feature is applied. In Excel 2007, the subtotal option
is found on
the Data tab, in the Outline group. A dialog box allows the user to choose the
columns to

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subtotal and the columns that contain the labels of the groups. A subtotal is
inserted below
the last row for each group, as shown in Figure 6.17 "Using Subtotals".

Figure 6.17 Using Subtotals

In a panel at the left of the screen are lines and symbols that indicate the level
of detail that
is displayed. By clicking on the boxes with minus signs, the rows containing the
data can be
hidden, leaving the subtotals or grand total, as shown in Figure 6.18 and Figure
6.19. This
feature allows a manager to view summary data very quickly without the visual
clutter of
the details.

Figure 6.18

Third level details are hidden.

Figure 6.19

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All details in rows 2–16 are hidden.

Graphics for Bar Charts and Milestones

Spreadsheets can be used for basic progress reports that show activities, dates,
and
horizontal bars that represent the duration of an activity. A sequence of dates can
be
created as column labels by entering the first two dates in the sequence, selecting
both
dates, and then dragging the fill handle—a small square in the lower right corner
of the
selected cell, as shown in Figure 6.20 "Creating a Sequence of Dates"—to extend the
pattern.

Figure 6.20 Creating a Sequence of Dates

The program is sophisticated enough to correctly fill date sequences between months
that
have a different number of days and even account for leap years in February.
Because more
sophisticated project management software uses a table design in which the first
two
columns are description and duration, a similar structure, in which those two
columns are
adjacent and in that order will make it convenient to transfer the list of
activities in a low-

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 complexity project into the project management software at a later date if the
spreadsheet
is not sufficient. In the duration column, use the following abbreviations:

 d for days
 wk for weeks
 mons for months


The duration of each activity and the relationships between activities can be
illustrated
using the drawing shapes. In Excel 2007, the same set of shapes and connector
arrows are
available as those in Word 2007. A long rectangle can represent a bar whose
length
represents the duration of the activity. Events or significant dates in the
project are
identified with a diamond. The diamond can be created by using a small square
shape and
rotating it. Arrows can be drawn between the shapes to indicate their
relationships, as
shown in Figure 6.21 "Diagram of Activities". Unfortunately, the arrows in
Excel 2007
connect to handles on the sides of the rotated squares instead of the corners.
This detail
may be overlooked in a simple project diagram.

Figure 6.21 Diagram of Activities

This type of diagram is useful for projects with low complexity where a simple
chart of a
few activities will suffice.

Software for Moderately Complex Projects

More complex projects involve more people who are often separated
geographically and
who contribute to the same documents. Complex projects have more tasks with
more

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complex relationships. To manage those tasks and relationships, using dedicated
project
management software and more sophisticated diagramming software is justified.

Sharing Team Documents

If more than one person on a team will be contributing to a document, the document
must
be accessible to them. To manage documents that are created by a team, it is
necessary to
control the edits so that work is not lost or confused.

Version Control

Files such as word processing documents and spreadsheets may be stored on an

individual’s computer and copies sent to participants who then make changes and
return
the revised version to the person who is responsible for the final version of the
document.
If more than one person is editing his or her own copy of a document at the same
time,
different versions of the document with different additions or corrections are
created.
Word processing programs such as MS Word 2007 have a feature that can compare two
documents and identify the differences to help bring the two different documents
back
together. This feature is found on the Review tab, in the Compare group, as shown
in Figure
6.22 "Compare Documents Feature".

Figure 6.22 Compare Documents Feature

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 Most software programs make periodic backups to protect from accidental power
loss.
One of the ways that a user can still lose a lot of work is by replacing a
newer version of a
document with an older version. It is possible to display the date on which
the file was
last saved using the Details view. If more than one version of the file exists
in two
different locations, the dates can be compared to determine which is the most
recent.
These techniques are useful for simple projects with very few participants.

File Storage and Access Control

Managing versions of documents that are edited by more than one person can be
done
more effectively by placing the file in a location that can be accessed by all
the team
members. This can be a shared drive on the company’s computer or on a document
sharing
service. People who need to use the document are grouped by their need for
access. Three
groupings are common:

1. View only
2. Edit only
3. Ownership/administrator

The owner or administrator of the document can set the access levels. These
levels of
access can be assigned to each individual, or they can be assigned to named
groups and the
person can be made a member of a group. The owner of the document can choose
to accept
or reject changes made by those with edit-only permission.

The advantage of this method is that there is only one version of the file. If
a file is being
edited, it is usually locked so that other team members may view the file but
cannot edit it
until the first editor closes the file.

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If the file is stored on a computer that is on a secure network within an
organization, it can
be difficult for team members who do not have direct connections to the company’s
network to get access to the files. To protect the security of the company’s
network, the
network administrator can grant an outside user permission to access the network
from
anywhere on the Internet using avirtual private network (VPN) connection. A VPN
uses encryption—replacing readable content with a code—to protect the communication
between the network and the user to make it secure. The VPN connection gets the
user
onto the company network as if they were directly connected, but they still need
the
appropriate passwords to access the shared documents.

Tracking Changes and Adding Comments

One of the features that is particularly useful for keeping track of the changes
made to a
document by several users is called Track Changes. In Microsoft Word 2007, it is
found on
the Review tab, in the Tracking group. Changes may be shown in the document or in
balloons at the side.
If a team member wishes to explain a change, it is very important that they do not
insert
their explanation as text into the document. Such explanations might not be deleted
and
would end up in the final version of the document with potentially damaging
results.
Instead, team members can use a form of electronic sticky note to make comments.
This
feature is found in MS Word 2007 on the Review tab, in the Comments group. A change
and
a comment are shown in Figure 6.23 "Tracking Changes and Adding Comments". The
document owner must go through the document and accept or reject each change and
delete all the comments before the document is released as a finished product. The
Next,
Accept, and Reject options are found in Microsoft Word 2007 on the Review tab, in
the
Changes group.

Figure 6.23 Tracking Changes and Adding Comments

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Diagramming Software

The processes and relationships in medium- and high-complexity projects usually

require
more sophisticated software tools for creating reporting diagrams and workflow
charts.
The market for diagramming software is more diverse than for word processing and
spreadsheets, and it is not as likely that most team members will have the same
programs
that save files in the same formats. Microsoft Viseo 2007 is available as a stand-
alone
program that sells for several hundred dollars. For medium-complexity projects, a
free
alternative to Viseo is Open Office Draw. Open Office is a free software
alternative that
includes a word processing, spreadsheet, presentation, and drawing programs. The
Open
Office Draw program, and others like it, can create diagrams such as the one shown
in Figure 6.24 "Diagram Created Using Open Office Draw".

Figure 6.24 Diagram Created Using Open Office Draw

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The files created by the various drawing programs might not be compatible with each
other, but all the programs can create static image files that can be pasted into
word
processing documents.

Project Management Software

The relationships between project activities can become complicated in medium- and
high-
complexity projects. Dedicated project management software can compute the sum of
activity durations along several different paths through complex relationships and
recalculate them immediately if any of the durations or starting times are changed.
Similarly, charts and reports are updated automatically based on the new data. The
most
popular software for medium-complexity projects is Microsoft Project. If a project
manager
begins work on the project in the belief that it can be managed using a list of
activities in a
word processing program or in a spreadsheet, the list of activities and their
durations can
be copied and pasted, or imported, into the project management software’s table of

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activities, if the original document or spreadsheet was designed with that
possibility in
mind, as shown in Figure 6.25 "List of Activities Transferred to a Project
Management
Program".

Figure 6.25 List of Activities Transferred to a Project Management Program

Once the data are placed in the project management software, the relationships can
be
defined and reports created. Organizations on a tight budget might consider using
an open source program named OpenProject. Open source software is usually available
at
no cost for individual users and with fewer restrictions than proprietary software
like
Microsoft Project. OpenProject is similar to Microsoft Project, as shown in Figure
6.26
"Open Source Project Management Software", and could be used on low- and medium-
complexity projects that do not need the more advanced features available in
Microsoft
Project.

Figure 6.26 Open Source Project Management Software

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Software for Complex Projects

Complex projects can involve thousands of individual activities and a company might
have
several projects going at the same time. Large, complex projects are common in the
construction industry. A software that is commonly used for complex projects in
construction is P3 or P6 from Primavera. It has the ability to produce
sophisticated reports
that help project managers to anticipate problems and make projections.

Word processing documents often contain data that could be aggregated and analyzed.
Beginning with Microsoft Word 2007 and the .docx file format, it is possible to
insert
characters called tagson either side of a particular section of a form or document
and
assign a data label. For example, the name of the supplier on an invoice could be
enclosed
between two tags: <supplier>Thompson Hardware</supplier>. These tags resemble those
used in the hypertext markup language (HTML) to identify how to display text on a
Web
page, but instead of telling a Web browser how to display the name of the supplier,
it
identifies Thompson Hardware as the supplier. These tags are can be created by
following a
set of rules called the extensible markup language (XML). Forms created using XML
can be
scanned for the content that is marked by tags. The data can be imported into a
spreadsheet or database for analysis. Creating documents that use XML to identify
data in
the forms can be done using Microsoft InfoPath. An example that identifies key
facts in a
document that was prepared using InfoPath is shown in Figure 6.27 "InfoPath Form
with
XML Tags". Because it takes extra effort to learn to use InfoPath, or a similar XML
authoring
program, and to create the forms, this approach is normally limited to complex and
sophisticated organizations that have the need to manage large amounts of data.

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Figure 6.27 InfoPath Form with XML Tags

KEY TAKEAWAYS
 Low-complexity projects might be managed using general purpose word
processing
and spreadsheet software by using the special features for outlining, managing
data,
and inserting graphic objects
 Medium-complexity projects need special purpose software for managing
project
activities, such as Microsoft Project, and graphic software such as VISEO. Open
source
software such as OpenProject and Open Office Draw may suffice.
 High-complexity projects need more sophisticated project management
software
like P6 from Primavera. Forms can be created using XML tags that allow data to
be
extracted from the documents.

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 Files can be stored at a location that is accessible by all the team
members. They
can be granted different levels of access, including view only, edit only,
and
ownership. Features like track changes and compare documents can help manage
edits.

EXERCISES
1. General purpose word processing and spreadsheet software might be
sufficient for
managing _____ (low-, medium-, high-) complexity projects.
2. Three features that are available in spreadsheet programs such as
Microsoft Excel
to manage tables of data are subtotal, sort, and _________.
3. If outline levels are assigned in a word processing document, the outline
may be
_________ or expanded to hide or display different levels of detail.
4. ______-________ (two words) software is often available at no cost, and
its use is
less restricted than proprietary software.
5. A VPN connection uses ___________ to protect the content of the
communication.
6. How are XML tags similar to HTML tags and how are they different?
7. How should activity information be organized in a spreadsheet to make it
easier to
transfer to a project management program?
8. What are three options for creating a diagram that displays a project’s
reporting
hierarchy for low- or medium-complexity projects?
9. What is an example of a software product that is commonly used for highly
complex projects?
10. What are three levels of file access and editing permissions that can be
assigned,
and what are examples of user groups that would be assigned to each level?

Internalize your learning experience by preparing to discuss the following.

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 Describe an experience you might have had with editing the same word
processing
document and how you managed the revisions. If you used some of the features
described above, how well did they work? What features were described that
might
have been helpful?

6.3 Exercises
Exercises at the end of the chapter are designed to strengthen your understanding
and
retention of the information recently acquired in the chapter.

ESSAY QUESTIONS
Write several paragraphs to provide more in-depth analysis and consideration
when
answering the following questions.

1. Assume that you are the leader of a virtual team that includes members who
are in
New York, Bogotá, Honolulu, and Tokyo. You would like to choose a day and time
for a
weekly conference call to keep the project on track. Choose a day and time and
explain your choice and the compromises and problems it might cause for each
member. Use the term “synchronous” correctly and identify the specific time
zone for
each participant.
2. From the list of available templates in your word processing or spreadsheet
software, choose a template and describe it. Fill it out and then describe how
it could
be modified to meet the needs of a particular situation or organization.

DISCUSSION
The exercises in this section are designed to promote exchange of information
among
students in the classroom or in an online discussion. The exercises are more
open
ended, which means that what you find might be completely different from what
your
classmates find, and you can all benefit by sharing what you have learned.

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1. Consider the newer synchronous and asynchronous communications technologies
with which you are familiar. Describe how they might be used on projects in
new and
innovative ways. Relate these ideas to what you learned about project cultures
—
specifically about innovation on projects—and describe how the new
communications
technologies could be used to innovate.
2. Describe your experience using Excel to manage data such as lists of
purchases.
Discuss how the features of sorting, filtering, and subtotaling could help
answer
questions about that list.

Chapter 7
Starting a Project
This chapter provides an overview of the selection and initiation of a project.
Prior to the
initiation of a project, the chartering organization—the organization that
determines the
need for the project—develops a justification for the project. Often, several
initiatives

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 compete for the resources of the organization, and potential projects are
evaluated to see
which ones are best aligned with the mission and goals of the organization.
This evaluation
process can be very simple where the benefits to the organization are obvious
and the
economics of the project are very favorable. On larger, more complex
initiatives, the
process of gathering and evaluating the data to justify the project can take a
year or more.
The information gathered during this evaluation process provides the basis for
the project
charter, the initial scope of work, and other information required to initiate
the project.

7.1 Project Selection
LEARNING OBJECTIVES
1. Describe the difference between an organization’s mission, goals, and
objectives.
2. Describe how the missions are different depending on the type of
organization.
3. Define economic terms used for choosing projects.
4. Define a project champion and his or her role.
5. Describe the influences of funding, timing, and unofficial
considerations on project
selection.

Projects are chosen for a variety of reasons and not all of them are apparent.
The project
manager must understand why a project was selected over other choices so that
he or she
can align the team toward justifying the choice that has been made by senior
management.

Mission of the Organization

The mission of an organization is a statement of why it exists. For example, a

police
department might have its mission stated on the door of each patrol car—to
protect and
serve. A well-written mission statement is short and has the following
sections:

 Purpose of the organization

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 Primary stakeholders
 Responsibility of the organization toward the stakeholders
 Products or services offered

Police Department Mission Statement

The mission of the Philadelphia Police Department is to fight crime and the
fear of crime,
including terrorism, by working with our partners to enforce the laws,
apprehend
offenders, prevent crime from occurring, and improve the quality of life for
all
Philadelphians. [1]

The missions of organizations can be categorized as profit, not for profit, and
government.
A business that is created to make a profit for its owners and stock holders
must consider
the cost of each project and how much profit it is likely to generate. The
mission statement
of a not-for-profit organization like a charity would emphasize the service it
provides. A
not-for-profit organization must control its costs so that it does not exceed
its funding, and
it is always seeking funding and is in competition with other not-for-profit
organizations
for funding from the same sources. A government agency, like a police
department, is
similar to a not-for-profit organization, but its sources of funding are
usually taxes and fees.
Its mission would include its responsibilities to the citizens it represents.
Government
organizations compete for funding from higher levels of government. Projects
are more
likely to be funded if the proposal for the project is closely aligned with the
mission of the
organization. The project manager must be aware of that mission while building
a team and
aligning it behind the purpose of the project.

Goals and Objectives

Senior administrators of the organization decide on how to achieve the mission

of the
organization by choosing goals. For example, the director of a not-for-profit
preschool that
provides low-cost education for children of poor, single parents might set
a goal of

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improving its reputation for quality. A goal is an end toward which effort is
directed. The
director meets with her staff and they consider several ways of achieving that
goal. They
decide to seek certification by a nationally known group that evaluates the quality
of
preschool programs. Obtaining this certification is anobjective.

Figure 7.1 Relationships between Mission, Goals, and Objectives

In this text, we distinguish between the terms goals and objectives. An objective
must have
a measurable outcome. In this example, it is easy to measure whether or not the
organization receives the certification, which is the distinguishing characteristic
of an
objective. The use of these terms is not standardized across the industry or in
business, but
we will be consistent within this text. To determine whether a statement is a goal
or an
objective, simply ask if there is a measurable outcome. Seeking the certification
is an
objective that can be met by treating it as a project that has a measurable outcome
and a
limited time frame.

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 Economic Selection Criteria
If an organization’s mission is to make money, it will try to maximize the
profits of the
company by increasing the money coming in or decreasing the money going out.
The flow
of money is called cash flow. Money coming in is positive cash flow, and money
going out is
negative. The company can maximize profits by improving its operational
efficiency or by
executing projects. The company must raise money to fund projects. Companies
can raise
money in three ways:

1. Borrow it (government organizations, such as cities and schools, can

sell bonds,
which is a form of borrowing).
2. Fund the project from existing earnings.
3. Sell additional stock or ownership shares in the company.
If a company borrows money, it must pay back a portion of the amount it
borrowed plus
additional interest. The interest is a percentage of the amount of the loan
that has not been
repaid. The repayment of the loan and interest is usually paid quarterly or
annually. To
qualify for selection, a project that is intended to make or save money must
be able to do
the following:
 Repay loans if money must be borrowed to fund the project
 Increase future earnings for shareholders
 Make the company stock more valuable
When senior managers at a for-profit company decide which projects to fund,
they must
consider these economic issues.

Simple Payback

To help managers choose between projects, they can use an unsophisticated

measurement
calledsimple payback. If the purpose of the project is to improve cash flow—
make it more

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positive or less negative—the improved positive cash flow each year is applied to
the
original cost (negative cash flow) of the project to determine how many years it
would take
to pay back the original cost. It is assumed that after that date, the improved
cash flow
could be used for other purposes or paid out to owners. For example, if the company
borrows $100,000 to fund the project and the project increases cash flow by $20,000
a
year, the simple payback would be five years, as shown in Figure 7.3 "Simple
Payback".
Figure 7.3 Simple Payback

The cash flow from each year is summed up in the cumulative cash flow row. When the
cumulative cash flow becomes zero or positive, it means that the original cost has
been paid
back by the increased income or savings created by the investment.

Companies can use simple payback to establish a cutoff for project consideration.
For
example, management could declare that no projects will be considered that have a
payback of more than three years. For projects that meet this criterion, projects
with
shorter simple payback periods would have an advantage in the selection process.
Not-for-
profit or government organizations are likely to approve projects with longer
simple
payback periods because they are not compared to other not-for-profit or government
agencies based on their profitability.

Internal Rate of Return

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Companies whose mission is to make a profit are usually trying to make more profit
than
their competitors. Simply paying back the loan is not sufficient. If the project
involves
buying and installing equipment to make a profit, executives can use another method
calledinternal rate of return (IRR). The IRR is like an internal interest rate that
can be used
to compare the profitability of competing projects. To calculate an IRR, the
company
considers the cash flow each year for the expected life of the product of the
project. It
assumes that some of the annual cash flows will be negative and that they can vary
from
year to year due to other factors, such as lost production during changeover,
periodic
maintenance, and sale of used equipment. For example, a company decides to upgrade
a
manufacturing line with new equipment based on new technology. They know that the
initial cash flow—shown in year zero—will be negative due to the expense of the
conversion. They know that the new equipment has an expected life of six years
before
newer technologies make it out of date, at which time they can sell it for a
certain salvage
value. The inputs to the IRR calculation are the net cash flow for each year where
at least
one of them is negative and at least one of them is positive. The result is a
percentage that
indicates how well this project performs as an investment. Refer to Figure 7.5.

Figure 7.5

The internal rate of return measures the profitability of an investment.

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 The life of the equipment is part of the IRR calculation. If a project manager
knows that
senior management intends to sell the equipment in six years, team members can
be made
aware of that decision if it affects their choices.

Other Selection Criteria

Besides making money, there are many other reasons for a project to be
selected, including
the following:

 Keeping up with competitors

 Meeting legal requirements, such as safety or environmental
protection
 Improving the organization’s public image
The timing of the project can be very important. A project might be selected at
a particular
time of year for some of the following reasons:
 Accumulating a year-end budget surplus
 Increasing executive bonus for the year or quarter
 Funding or certification review deadline
If the project manager must make changes to the schedule at some point in the
project that
could affect its completion date, it is valuable to know if the project was
selected because of
timing.

Project Champions and Opponents

In addition to knowing why a project was selected, it is valuable to know which

senior
executives supported or opposed the selection of the project and if the project
manager’s
supervisor was in favor of it or not. Because most project teams consist of
people who do
not report to the project manager but who report to other unit managers, they
might not be
available when you need them if their boss thinks other projects are more
important. If a
particular executive proposed the project and actively advocated for its
approval, that

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person could be a source of support if the project runs into trouble and needs
additional
resources. A project champion, sometimes called an executive sponsor, is an
influential
person who is willing to use his or her influence to help the project succeed.

To identify the advocates and opponents of the project, begin by reading public
documents
(if available), such as the minutes of the meeting at which the project was
approved. Next,
the project manager can use his or her unofficial network of trusted colleagues to
get their
opinions. Those discussions should be informal and off the record. Those opinions
might be
inaccurate, but it is valuable to know what misunderstandings exist about a
project. If
executives in an organization are assigned as project sponsors, the project
champion might
be a different person.

Project Champions Support an Aircraft Project

When Vought Aircraft won a contract with Boeing to build a significant portion of
the
fuselage for the new 787 Dreamliner in Charleston, South Carolina, there was no
existing
workforce with aircraft experience. To give Vought Aircraft an incentive to locate
the plant
in South Carolina, Governor Mark Sanford, with the support of the legislature,
committed to
the recruitment and training of the workforce needed for the plant to be
successful. The
legislature provided several million dollars and assigned the role of developing a
trained
workforce to the South Carolina Technical College System and Trident Technical
College,
the local community college in Charleston, South Carolina.
Dr. Jim Hudgins, president of South Carolina’s Technical College System, assigned
the most
experienced project manager to the project and personally accepted the role of
project
sponsor.

Dr. Hudgins and Dr. Thornley, president of Trident Technical College, met with the
project
leadership at least monthly to review project plans and progress. Each month both
Dr.
Hudgins and Dr. Thornley assigned resources and removed barriers to project
success. Dr.
Thornley assigned procurement personnel to the project to assure materials were

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purchased and delivered in time to support the project schedule. She reallocated
space to
provide training laboratories for the project and assigned a college leader to the
project
full-time to coordinate actions with the college. Dr. Hudgins coordinated with the
Governor’s office to assure the project received the appropriate level of support.

Both Dr. Hudgins and Dr. Thornley had the political power and the resources to
assure the
project had the autonomy and the resources to succeed. The project met every
milestone,
exceeded every measurable goal, and received high praise from Vought Management as
the
plant began operations on schedule.
KEY TAKEAWAYS
 A mission statement declares the purpose of the organization and identifies
the
primary stakeholders, the products or services offered, and the responsibility
toward
the stakeholders. Goals are statements of direction for the organization, and
objectives are activities that achieve those goals with measurable outcomes.
 Profit-making organizations exist to make profits for their owners while in
competition with other companies. The goals of those companies are directed at
making as much or more money than the competition. Not-for-profit organizations
are
directed at providing a service to a particular group. They must control costs
to
perform their tasks with the funds they have, and they compete with other not-
for-
profit organizations for donations and funding. A government agency is similar
to a
not-for-profit organization, but its sources of funding are usually taxes,
fees, and
funding from a higher level of government, and it has a responsibility to the
citizens it
represents. Government organizations must justify their expenditure of tax
money to
elected or appointed officials.
 Two economic tools for evaluating and comparing projects are simple payback
and
internal rate of return. Simple payback is a calculation of the year when the
cumulative income or savings due to spending money on a project will meet or
exceed
the original cost of the project. Internal rate of return is a calculation of
the average
percentage of increased cash flow over the life of the project’s product.

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 A project champion is an influential person who is willing to use his or
her influence
to help the project succeed. It is useful to know why the project champion
wants the
project to succeed and to be sure to accomplish that goal even if it is not
stated.
 Project selection depends on the availability of funds, which depends on
the way
each type of organization receives money for projects. Funds might be
available at
certain times and projects are selected that can take advantage of that
opportunity.
Projects might be initiated for reasons that are not stated, and investigating
the
source of funding and likely motivation of project champions can provide
better
understanding of the project’s chances for success.

EXERCISES
1. An end toward which effort is directed that has measurable outcomes is an
__________ in this text.
2. A general statement of the direction an organization should take is a
______.
3. If a company has to make quarterly loan payments to the bank, this is an
example
of a negative _______ ______ (two words).
4. If you borrow $1,000 and have to pay back $1,010 a month later, the $10
dollars is
the _______.
5. If a company had to choose between installing two different pieces of
expensive
equipment that had different expected lifetimes, different salvage values, and
different production capabilities, it would compare the _______ _____ __
________
(four words) for each option
6. On Google’s Web pages, it says that they want to “organize the world’s
information
and make it universally accessible and useful.” This is an example of a
_______
statement.
7. An influential person who is in favor of a project is one of the project
________.
8. If upgrading the windows in a building costs $100,000 and it reduces
heating and
cooling costs by $5,000 a year, the investment in the window upgrade has a
_____
______ (two words) of twenty years.

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9. The group that determines the need for a project is the ________
organization.
10. What are four parts of a well-written mission statement?
11. What is the primary mission of each of the following types of
organizations: profit-
making, not-for-profit, and government organizations?
12. What does it mean if the money spent on a project has a simple payback of
five
years?
13. Why is it important to identify project champions?
14. What is an example of funding for a project that is only available for a
short period
of time under special circumstances?

Internalize your learning experience by preparing to discuss the following.

Choose an example from outside the assigned reading of a mission, goal, and
objective
that demonstrates the characteristics of each and how they relate to each
other. The
example can be from a real organization or it can be fictional. Describe the
characteristics of a mission, goal, and objective, as defined in this
chapter, and how
the example demonstrates those characteristics.

[1] Philadelphia Police Department, Philadelphia Police Department: Mission

Statement,
2009,http://www.ppdonline.org/hq_mission.php (accessed July 16, 2009).

7.2 Project Scope
LEARNING OBJECTIVES
1. Define scope and describe how it is affected by project complexity.
2. Identify the uses of a scope document.
3. Describe how a scope document is developed and changed.

The project scope identifies the total work of the project.

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Definition of Scope and the Effects of Complexity

The scope document defines what tasks the project team is expected to accomplish

and,
just as importantly, what is not part of the project. Depending on the complexity
level of the
project, the scope document can be as short as one page or as long as several
hundred
pages. On more technical projects, such as a project to design an offshore wind-
turbine
farm, the scope would include a significant amount of technical specifications,
with a focus
on the electrical output from the wind turbines. The size and character of the
project scope
document is related to the project complexity. Higher scores on the Darnall-Preston
Complexity Index indicate the need for more detailed scope documents.

Uses of a Scope Document

A well-developed project scope statement provides the project team with information
the
team needs to design and implement the project execution plan. The well-developed
project scope also provides the team with an understanding of the purpose of the
project
and the basis for defining project success.

Scope Document for Training Auto Workers

An automotive company is building a new plant to produce electric passenger cars in
the
southeast United States. As the plant nears completion, the plant’s manager issues
a
contract to train the new plant workers. The training of workers who will be
maintaining
the production equipment will be done by the equipment suppliers and will not be in
the
scope of the training contract.

The scope of work for the training project will include the identification of the
knowledge,
skills, and abilities needed by each classification of worker and the development
of the
delivery methodology that will effectively and efficiently develop the identified
knowledge,
skills, and abilities (online, classroom, hands-on). The scope will also include
delivery of the

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training, evaluation of the workers after training, and the development of training
records.
Items not included in the project scope are items that will be the responsibility
of the
automotive company, such as the selection and hiring of the workers and the
provision of
the automotive tools and equipment needed for training. These exclusions are
specifically
stated in the scope document.

During the design of the plant, the Human Resources Division of the company
explored
different workforce models. The plant will be a typical assembly operation working
three
shifts. Experience in other plants indicated that a team-based approach combined
with a
lean manufacturing philosophy produced the highest productivity. This information
was
included in the documents provided to the team developing the training project’s
scope.
The plant manager, the human resources manager, and the plant engineer reviewed and
occasionally made changes to the draft training scope.

The scope of work for the training project was developed from a combination of
information from experts with previous experience, documents that reflected the
plant
operation philosophy, and selected managers from operations and human resources.
All
the knowledge needed to develop the scope was within the automotive project team.
Sometimes outside consultants are needed to develop a complete project scope. For
example, if the team in our automotive training example did not have experience in
the
start-up of another automotive plant, then the hiring of a consultant with that
experience
might have been required to understand the entire scope of activities needed for
training
the automotive workforce.

The automotive project described above is a typical example of the types of

information
and the people involved in developing a project scope. From the information in the
project
description, the project team could develop a project scope document.

Development of a Scope Document

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The project manager will often develop the first draft of the project scope and
then
solicit feedback and suggestions from the project team, client, and sometimes key
vendors. The project manager will attempt to develop consensus around the project
scope, but the final approval belongs to the project client or sponsor. Depending
on the
complexity profile of the project, the development of the project scope document
can be
a short discussion between the project manager and the client, or on a large,
complex
project, the process can take weeks.

Managing Changes to the Scope Document

The project scope is not a stagnant document, and changes are to be expected.
Changes to
the project scope are necessary to reflect new information. Changes to the project
scope
also create the opportunity for new purposes to emerge that will change the end
results of
the project. In some cases, these new results represent a positive outcome for the
chartering organization.

Deviation versus Change

If a minor change is made to the schedule that does not affect the completion date
of the
project, it is a deviation from the schedule. As long as the end date of the
project or
major objectives are not delayed, a formal change request to the client is not
needed.
Recording and communicating these schedule deviations is still important for
coordinating resources and maintaining the client’s awareness of the project’s
progress.

Deviation of Labor Cost

The labor cost was estimated at fifteen dollars per hour for cleaning the project
office once
per week. The winning bid for the contract was at sixteen dollars per hour. The
cost
deviated from the estimate and a change was made to the budget. This was a cost
deviation,
not a change in scope. The additional cost for the contract was covered from the
project
contingency reserves, and the budget was revised to reflect the changes.

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 Truck Crash Causes a Deviation to the Schedule
Installation of a fence around the project site was delayed when the truck
delivering the
fence was wrecked on the way to the job site. The fence project was delayed by
one week
and the delay did not affect any other activity on the project. This deviation
from the
original schedule did not cause a delay in the project, and the schedule was
adjusted as a
deviation to the schedule—not a change request.

Documenting Changes

It is important to have a written record of changes to the scope of a project.

On the least
complex projects, an e-mail message can be sufficient, but on larger projects a
standard
form is normally used. The following steps are paraphrased by Tom
Mochal, [1] and they
have the necessary components of a change documentation process:

 Inform project stakeholders of the change request process.

 Require that the change request is made in writing, including the
business value of
the change to the project.
 Enter the request in the scope change log.
 Estimate the time needed to evaluate the change. If the evaluation
process is time
consuming and would affect activity completion dates by diverting management
resources,
get approval from the project sponsor to evaluate the change request. If the
evaluation is
not approved, record the decision in the scope change log.
 Evaluate the change and its impact on the schedule and budget if the
evaluation is
approved.
 Present the change request to the project sponsor for approval. Record
the decision
in the scope change log with the recommended course of action.

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 Distribute the scope change log periodically to team members so they
know what
changes are being considered and what happened to those that were not approved
or
evaluated.
 If the change is approved, update the project charter or other
initiation documents.
 Update the work plan.
 Distribute the revised work plan to stakeholders and team members.

KEY TAKEAWAYS
 Scope is a description of the major tasks that are included in the
project and some
of the tasks that are specifically not included. More complex projects
require more
detailed and specific scope documents.
 A scope document is used to provide the project team with the
information it
needs to design and implement the project plan. It provides understanding
of the
purpose of the project and what project success would be.
 The scope document begins as a draft that is circulated for comments by
the team,
client, and in some cases, key vendors. The final draft is approved by the
client or
sponsor. Changes to the scope are documented carefully using standard
forms and
processes and approved by the project sponsor or client.

EXERCISES
1. How is the scope statement affected by the complexity of the project?
2. What negative aspect of the scope statement is important?
3. What are the uses of a scope statement?
4. Once a scope statement is agreed to, how is it changed and what is
always
required when a scope statement is changed?

Internalize your learning experience by preparing to discuss the

following.

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 Describe a situation where the elements of the project scope did not
specifically
exclude an activity that caused a misunderstanding.

[1] Tom Mochal and Jeff Mochal, Lessons in Project Management (Berkeley, CA:

Apress, 2003).

7.3 Project Start-Up
LEARNING OBJECTIVES
1. Identify the major activities included in project start-up.
2. Explain how the project start-up activities may differ on a highly complex
project.

The parent organization’s decision-making process influences when start-up

activities of
the project will take place. The transition from planning to project initiation is
typically
marked by the decision to fund the project and selection of the project manager.
However,
selection of the project manager is not always the defining event. Some
organizations will
have the project manager involved in project evaluation activities, and some select
the
project manager after the decision to fund the project has been made. Including the
project
manager in the evaluation process enables the project manager to have an
understanding
of the selection criteria that he or she can use when making decisions about the
project
during later phases. Selecting the project manager prior to a complete evaluation
also
includes some risks. The evaluation of the project may indicate a need for project
manager
skills and experiences that are different from the project manager who is involved
in the
evaluation.

Selecting the best project manager depends on how that person’s abilities match
those
needed on the project. Those skills can be determined using the Darnall-Preston
Complexity Index (DPCI). If the project profile indicates a high complexity for
external
factors and a medium complexity for the project’s technology, the profile would
indicate
the preference for a project manager with good negotiation skills and an
understanding of
external factors that affect the project. Because of the technological rating, the
project

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 manager should also be comfortable in working with the technical people
assigned to the
project. The project manager involved in the project selection process may not
be the best
match for the project execution.

During the start-up of a project, the project manager focuses on developing the
project
infrastructure needed to execute the project and developing clarity around the
project
charter and scope. Developing the project infrastructure can be a simple task
on a project
with a low complexity level. For example, the project manager of a worker
training project
in South Carolina who works for a training college has existing accounting,
procurement,
and information technology (IT) systems in the college that he or she can use.
On large
complex projects, a dedicated project office, IT system, and support staff
might be needed
that would be more challenging to set up. For example, on a large construction
project in
South America, the design and operations offices were set up in Canada, Chile,
and
Argentina. Developing compatible IT, accounting, and procurements systems
involved a
high degree of coordination. Acquiring office space, hiring administrative
support, and even
acquiring telephone service for the offices in Argentina required project
management
attention in the early phases of the project.

The project manager will conduct one or more kickoff meetings to develop plans
for the
following activities:

 Establish the project office.

 Develop project policies and procedures.
 Begin refining the scope of work, the schedule, the budget, and the
project execution
plan.


Depending on the complexity level of the project, these meetings can be lengthy
and
intense. Tools such as work flow diagrams and responsibility matrices can be
helpful in

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defining the activities and adding clarity to project infrastructure during the
project start-
up.

Typically, the project start-up involves working lots of hours developing the
initial plan,
staffing the project, and building both internal and external relationships. The
project start-
up is the first opportunity for the project manager to set the tone of the project
and set
expectations for each of the project team members. The project start-up phase on
complex
projects can be chaotic, and the project manager must be both comfortable in this
environment and able to create comfort with the client and team members. To achieve
this
level of personal comfort, the project manager needs appropriate tools, one of
which is an
effective alignment process. This is one of the reasons there are a large number of
meetings
during the start-up of projects with a high-complexity profile.

KEY TAKEAWAYS
 The major activities included in project start-up are selecting the
project manager;
establishing funding; developing project infrastructure such as accounting,
procurement, and IT; holding a kickoff meeting, determining staffing; and
building
relationships.
 The start-up activities for small projects can utilize existing
infrastructure for
support functions and can have a single start-up meeting, while larger
projects require
more dedicated infrastructure and full-time staff, and the start-up meetings
can take
longer and involve more people.

EXERCISES
1. What are four of the major activities that occur during project start-up?
2. What is one type of start-up activity that is affected by the difference
in a project’s
complexity? Describe the difference in that activity between low-, medium-,
and high-
complexity projects.

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 Internalize your learning experience by preparing to discuss the following.

How does the choice of project manager affect the start-up of the project?
Include a
discussion of the point in the process at which the project manager is
assigned and
how the personality of the manager affects the match between the manager and
the
complexity of the project.

7.4 Alignment Process
LEARNING OBJECTIVES
1. Identify the purpose of the alignment process.
2. Identify the components of the alignment process.
3. Identify the effects of a lack of trust on a project.
Developing a common understanding among the key stakeholders of the purpose and
goals
of the project and the means and methods of accomplishing those goals is called
thealignment process. It is important to accomplish this alignment during the
initiation
phase. Project managers usually conduct a start-up meeting that is sometimes called
a
kickoff meeting. The agenda and duration of the start-up meeting depends on the
complexity level of the project. Projects with a limited scope and short duration
may
engage in a session start-up meeting over lunch. A medium-complexity project will
require
a four-hour meeting or more while a high-complexity project cannot achieve
alignment in a
single meeting. Alignment can require several days of activities.

Five-Day Alignment Meeting on a Horse Ranch

On one large, complex project, the project alignment required a five-day process.
Over
twenty members of the project team and client participated in this alignment. To
create a
relaxed atmosphere and facilitate an open discussion, the alignment meetings and
activities
were held on a horse ranch in Argentina.

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 A number of companies specialize in designing and facilitating alignment
sessions for large
complex projects. Although designed to meet the needs of each project,
alignment sessions
have some common agenda items:

 Developing a common understanding of the project purpose

 Agreeing on the means and methods for accomplishing the purpose
 Establishing trust among team members

Common Understanding
A common understanding does not mean building a consensus. People may disagree
with
the direction being developed, but they have the same basic understanding as
those who
agree. For a project plan to be effective, there must be a critical mass or
sufficient
commitment among the critical stakeholders. Therefore, disagreement is not
fatal to the
project execution, but a unified team with a common understanding is much more
powerful
and increases the likelihood of success. If disagreement does exist, an open
and forthright
discussion will enable the project leadership to address the disagreement in
developing the
project plan. If the disagreement stays hidden and is not openly discussed,
problems will
emerge later in the project.

Developing a common understanding can be as easy as an informal discussion that

lasts a
few hours, or it can be a lengthy, complex process. The methods and processes
employed to
develop a common understanding are directly related to the complexity of the
project. The
more complex projects will require more intense discussions around those issues
that
score high on the complexity profile.

Developing a common understanding among the key project stakeholders requires

the
following:

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 Defining project success
 Determining potential barriers to success
 Establishing key milestones
 Identifying decision makers and the decision-making process
It is difficult to execute a successful project without first defining what
makes a successful
project. The first part of this discussion is easy: the project must be
completed on time,
within budget, and to all specifications. The next level of the discussion
requires more
reflection. During this discussion, reflection on the organization’s mission,
goals, and
related issues such as safety and public perception of the project emerge.

After the team develops a common understanding of project success, a discussion

of
barriers to achieving that success enables team members to express skepticism.
On more
complex projects, the goals of a project often seem difficult to achieve. A
discussion by the
team of the potential barriers to project success places these concerns out in
the open
where team members can discuss and develop plans to address the barriers.
Without this
discussion, the perception of these barriers becomes powerful and can have an
effect on
project performance.

Project Purpose

The project purpose is sometimes reflected in a written charter, vision, or

mission
statement. These statements are developed as part of the team development
process that
occurs during the project initiation phase and results in a common
understanding of the
purpose of the project. A purpose statement derived from a common understanding
among
key stakeholders can be highly motivating and connects people’s personal
investment to a
project purpose that has value.

A purpose statement—also called a charter, vision, or mission—provides a

project with an
anchor or organizational focus. Sometimes called an anchoring statement, these
statements

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can become a basis for testing key decisions. A purpose statement can be a powerful
tool
for focusing the project on actions and decisions that can have a positive impact
on project
success. For example, a purpose statement that says that the project will design
and build
an airplane that will have the best fuel efficiency in the industry will influence
designs on
engine types, flight characteristics, and weight. When engineers are deciding
between
different types of materials, the purpose statement provides the criteria for
making these
decisions.

Developing a common understanding of the project’s purpose involves engaging

stakeholders in dialogue that can be complex and in-depth. Mission and vision
statements
reflect some core values of people and their organization. These types of
conversations can
be very difficult and will need an environment where people feel safe to express
their
views without fear of recrimination.

Goals

Goals add clarity to the anchor statement. Goals break down the emotional concepts
needed in the development of a purpose statement and translate them into actions or
behaviors, something we can measure. Where purpose statements reflect who we are,
goals focus on what we can do. Goals bring focus to conversations and begin
prioritizing
resources. Goals are developed to achieve the project purpose.

Developing goals means making choices. Project goals established during the
alignment
process are broad in nature and cross the entire project. Ideally, everyone on the
project
should be able to contribute to the achievement of each goal.
Goals can have significantly different characteristics. The types of goals and the
processes
used to develop the project goals will vary depending on the complexity level of
the project,
the knowledge and skills of the project leadership team, and the boldness of the
project
plan. Boldness is the degree of stretch for the team. The greater the degree of
challenge and

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the greater the distance from where you are to where you want to be, the bolder the
plan
and the higher the internal complexity score.

Roles

Role clarity is critical to the planning and execution of the project. Because
projects by
definition are unique, the roles of each of the key stakeholders and project
leaders are
defined at the beginning of the project. Sometimes the roles are delineated in
contracts or
other documents. Yet even with written explanations of the roles defined in
documents,
how these translate into the decision-making processes of the project is often open
to
interpretation.

A discussion of the roles of each entity and each project leader can be as simple
as each
person describing their role and others on the project team asking questions for
clarification and resolving differences in understanding. On less complex projects,
this is
typically a short process with very little conflict in understanding and easy
resolution. On
more complex projects, this process is more difficult with more opportunities for
conflict in
understanding.

One process for developing role clarification on projects with a more complex
profile
requires project team members, client representatives, and the project’s leadership
to use a
flip chart to record the project roles. Each team divides the flip chart in two
parts and
writes the major roles of the client on one half and the roles of the leadership
team on the
other half. Each team also prioritizes each role and the two flips charts are
compared.

This and similar role clarification processes help each project team member develop
a
more complete understanding of how the project will function, how each team member
understands their role, and what aspects of the role are most important. This
understanding aids in the development or refinement of work processes and approval

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 processes. The role clarification process also enables the team to develop role
boundary
spanning processes. This is where two or more members share similar roles or
responsibilities. Role clarification facilitates the development of the
following:

 Communication planning
 Work flow organization
 Approval processes
 Role boundary spanning processes

Means and Methods

Defining how the work of the project will be accomplished is another area of
common
understanding that is developed during the alignment session. An understanding
of the
project management methods that will be used on the project and the output that
stakeholders can expect is developed. On smaller and less complex projects, the
understanding is developed through a review of the tools and work processes
associated
with the following:

 Tracking progress
 Tracking costs
 Managing change


On more complex projects, the team may discuss the use of project management
software
tools, such as Microsoft Project, to develop a common understanding of how
these tools
will be used. The team discusses key work processes, often using flowcharts, to
diagram the
work process as a team. Another topic of discussion is the determination of
what policies
are needed for smooth execution of the project. Often one of the companies
associated with
the project will have policies that can be used on the project. Travel
policies, human

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resources policies, and authorization procedures for spending money are examples of
policies that provide continuity for the project.

Trust
Trust on a project has a very specific meaning. Trust is the filter that project
team members
use for evaluating information. The trust level determines the amount of
information that is
shared and the quality of that information. When a person’s trust in another person
on the
project is low, he or she will doubt information received from that person and
might not act
on it without checking it with another source, thereby delaying the action.
Similarly, a team
member might not share information that is necessary to the other person’s function
if they
do not trust the person to use it appropriately and respect the sensitivity of that
information. The level of communication on a project is directly related to the
level of trust.

Trust is also an important ingredient of commitment. Team member’s trust in the

project
leadership and the creation of a positive project environment fosters commitment to
the
goals of the project and increases team performance. When trust is not present,
time and
energy is invested in checking information or finding information. This energy
could be
better focused on goals with a higher level of trust. [1]

Establishing trust starts during the initiation phase of the project. The kickoff
meeting is
one opportunity to begin establishing trust among the project team members. Many
projects have team-building exercises during the kickoff meeting. The project team
on
some complex projects will go on a team-building outing. One project that built a
new
pharmaceutical plant in Puerto Rico invited team members to spend the weekend
spelunking in the lime caves of Puerto Rico. Another project chartered a boat for
an
evening cruise off the coast of Charleston, South Carolina. These informal social
events
allow team members to build a relationship that will carry over to the project
work.

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 KEY TAKEAWAYS
 The purpose of the alignment process is to develop a common understanding
of
the purpose, agree on the means and methods, and establish trust.
 The components of the alignment process are discussions of the purpose,
goals,
participant roles, methods of tracking progress and costs, methods of managing
change, and building trust.
 The effects of a lack of trust are delays caused by fact checking or
missing
information that was not shared because the person’s discretion was not
trusted to
handle sensitive information.
EXERCISES
1. The initial meeting that is designed to build understanding and consensus
around
the goals and objectives of the project is the __________ meeting.
2. What are the objectives of the alignment process?
3. What are five of the seven components of the alignment process?
4. How can lack of trust between team members adversely affect the project?

Internalize your learning experience by preparing to discuss the following.

Why is an alignment meeting important? What needs to be accomplished, and what

are two examples of things that could go wrong if the alignment meeting does
not
meet its objectives?

[1] Marsha Willard, “Building Trust: The Relationship Between Trust and High
Performance,” Axis Advisory1999, http://www.paclink.com/~axis/M7trust.html.

7.5 Communications Planning
LEARNING OBJECTIVES
1. Describe the differences between communications in an existing organization
compared with a new project.

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2. Describe how the detail of the communications plan is related to the
complexity of
the project.
3. Describe a communication matrix and its function.
4. Describe conventions for naming files to indicate their content and the
version.
The flow of information between team members and stakeholders is managed by rules
set
forth in a communications plan.

When a person joins an existing organization, one of the early tasks is to learn
the work
processes of the organization, including where to find information, the meeting
schedule,
and what reports are required. In existing organizations, new members discover the
gatekeepers of information: those persons in the organization who know how to
generate
or find information. Typically, the generation, flow, and storage of information
reflects the
organizational culture, and to effectively communicate in an organization, a person
must be
able to develop communication styles and processes consistent with that
organization.

Projects do not have the advantage—or sometimes the disadvantage—of an existing

organizational culture or communication structure. The project leadership team
develops
an understanding of the information needs of the various members and stakeholders
of the
projects and develops a communications plan that provides the right information, at
the
right time, to the right people.

The detail of the communications plan is related to the complexity level of the
project.
Highly complex projects require a detailed communications plan to assure that the
information needed by the project team and stakeholders is both generated and
distributed
to support the project schedule and project decisions. Crucial information can be
lost or
delayed in a complex project if the communications plan is not functioning
properly.

Communicating Priorities
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During a project in Tennessee, the project management team was exploring ways to
complete the project earlier to meet the changing requirements of the project’s
client. The
team identified a number of actions that could create an earlier completion date.
The plan
required an early delivery of critical equipment by a supplier, and the team
visited the
supplier’s senior management and agreed to pay a bonus for early delivery of the
equipment.

Two weeks later, during a review of the project procurement team progress, the
project
manager discovered that the organization’s procurement department had delayed
approvals needed by the supplier because the engineering design was not submitted
in the
required format. This action effectively delayed the project two weeks and reduced
the
possibility of the project team meeting milestone requirements for earning a bonus.

The organization’s procurement team did not understand the critical nature of this
supplier’s contribution to an early completion of the project. All the information
needed by
the organization’s procurement team was in the meeting minutes distributed to the
entire
team. The procurement team did not understand the implications of their work
processes,
and the result was a delay to the project schedule and a reduction in client
satisfaction and
project profitability.

Effective communication on a project is critical to project success. The Tennessee

project is
a typical example of errors that can be created by the breakdown in communication
flow.
Highly complex projects require the communication of large amounts of data and
technical
information that often changes on a frequent basis. The project manager and the
leadership
team are responsible for developing a communications plan that provides the right
information, at the right place, at the right time. The Tennessee project example
demonstrates that even when the information is at the right place and at the right
time, the
project procurement leader must assist the procurement team in understanding the
priorities of the project. On large, complex projects, that procurement lead would
not be in

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the daily communication to subcontractors or vendors. In the Tennessee project
example,
the procurement leader’s unique understanding that came from participation in the
project
leadership meeting required a more direct involvement with those subcontractors and
vendors that impacted the project goals.

Just as important, an effective project communications plan does not overload team
members and project systems with information that is not useful. Some project
managers
will attempt to communicate everything to the entire project team. Although this
assures
that each team member will receive critical information, the large influx
information can
make the distillation of the information to the critical and relevant people more
difficult for
each team member.

Communication Matrix
A Guide to the Project Management Body of Knowledge (PMBOK Guide) describes tools
and
techniques for identifying project stakeholders, defining their information
requirements,
and determining the appropriate communication technology. The project includes
developing a list of all the people impacted by the outcome of the project and
people who
can influence the execution of the project, including project team members. The
project
leadership then generates a list of information needed or requested by each
stakeholder.

The project leadership team develops a list of communication methods for gathering
and
communicating project information. These include a list of reports, meetings, and
document flowcharts. The leadership team then typically develops
a communication matrix that details who is included in each project meeting and the
distribution of major documents in a table format.

Figure 7.13 Simple Communication Matrix

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Document Control
On large, complex projects, organizing the creation, distribution, and storage of
documents is a major and important activity. Organizations that execute a large
number
of complex projects will often have project document control systems that the
project
leadership team will adapt for their project. Document control systems distribute,
store,
and retrieve information that is needed by the project team. Documents originate
from
the various team members during the planning and execution of the work and then are
transmitted to the document team for cataloging, distributing, and storing.

Document control systems have a systematic numbering system that allows a team
member to derive information about the document through the document number.

Document Naming Provides Information about the

Content
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On a complex project, document names were chosen to indicate the category,
location,
purpose, author, and date. For example, a file named
323RFQDewateringPump_Darnall_10.08.2012 rev 3. contains five pieces of information
about the content of the file. The first digit of the first number was used to
indicate the
category of the document. For example, all documents related to the project scope
started
with a 100 number and documents related to procurement started with 300. In this
file
name, the 3 indicates the document refers to procurement, the next two digits—23—
refer
to a location on the project (the south pumping station). The naming convention was
distributed to team members so that when they saw this file name, they could
interpret it
to mean that the document refers to a procurement document, specifically a request
for a
quote for a dewatering pump for the south pumping station and that the document was
prepared by the procurement team member (Darnall) on August 10, 2012. One of the
naming conventions that was specifically described was the use of date formats in
the
international format of dd/mm/yyyy instead of the American format of mm/dd/yyyy, so
team members know this document was created on August 10 rather than October 8.

When files are stored on a computer, the names can be sorted alphabetically. The
beginning
of the name is used as the primary sorting criteria. In the example above, sorting
a list of
document names would place all the documents together by category (e.g., scope and
procurement), because all the documents related to scope would begin with a 1 and
all
those that are related to procurement would begin with a 3.

When a document is expected to be revised over the course of the project, version
control
becomes important. Version control means labeling each revision to enable the team
to
understand the latest activity and status of the document (or the activity behind
the
document). For example, on engineering and construction projects, document control
tracks the development and distribution of documents. Each drawing is given a
unique
identification that reflects the type of drawing (electrical, civil, etc.), the
location (first floor,
mechanical room, etc.), and the version number. Because the design process includes

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 several iterations of the drawings as more information is developed, document
control uses
an identification that indicates the version of the document.

For example, a project will use letters to indicate the version of the document
until the
document is approved for construction, and then it is given a number after
approval.
Therefore, a document with revision D will be the fourth version of the
document. The
same document with revision 3 means that this is third revision after the
project was
approved for construction.

To assure that everyone who should either review or approve the document
received a
copy, document control develops a distribution list for each type of documents.
Each
person reviews and signs the distribution list and then sends the document to
the next
person on the list. The design documents, distribution lists, and other project
documents
are archived by document control for future reference. In the example above,
the document
was the third revision after the design was approved for construction.

Naming conventions for files and the versions of files should be consistent
with the
practices of the parent organization or with the client organization so that
the files may be
archived with files from other projects. For example, California Road
Construction Projects
require a specific file naming convection.

Document Naming Convention in California

All Highway Construction Projects (Roadway) are required to be named in
accordance with
the following naming convention:

d12345ppXXX

 d = District code. The district code represents the district where the
project is being
constructed (not the district creating the CADD drawings). Districts 1–9 use a
single

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 numeric character (1–9, respectively). Districts 10 through 12 use a single
alpha character
(a–c, respectively).
 12345 = First five characters of the project expenditure authorization.
 pp = Print Sequence Code (two alpha characters).
 XXX = Respective sheet numbers (numerical characters) for each Print
Sequence
Code used in the project.

For example,

512121ic007.dgn
 5 = District 05.
 12121 = First five characters of the project expenditure authorization.
 ic = Print Sequence Code (Drainage Details).
 007 = Sheet number (seventh Drainage Detail sheet).

KEY TAKEAWAYS
 In an existing organization, there are gatekeepers of information who
know how to
find it, when meetings are scheduled, and what reports are required. In a
new project,
the project manager can create a new flow of information and reporting
requirements.
 More complex projects require more sophisticated communications plans.
 A communication matrix is a table that shows the names of people as
column or
row headings and the types of documents as row or column headings. In the
cells
where the name and document type intersect, a symbol indicates the person’s
responsibility or access with regard to that type of document.
 File names can be used as codes to describe the contents of the file.
Parts of the
name can be used to identify the category, location, subject, author, and
date. File
name conventions should be used that match those used by the parent
organization
or by the client.

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 EXERCISES
1. A table that relates types of documents, people, and their responsibilities
and
access is a communications ____________.
2. How do communications on a new project differ from communications in an
existing organization?
3. How does the communications plan differ for a complex project compared to a
simple project? Provide an example.
4. What is the purpose of using a document naming convention? Describe at
least
three types of information that the file name could contain.

Internalize your learning experience by preparing to discuss the following.

What is the purpose of a communications plan and what is an example of a

problem
that might arise if the communications plan is not complete and an example of
a
problem that might arise if the communications plan is not followed?

7.6 Exercises
Exercises at the end of the chapter are designed to strengthen your understanding
and
retention of the information recently acquired in the chapter.

ESSAY QUESTIONS
Write several paragraphs to provide more in-depth analysis and consideration
when
answering the following questions.

1. Choose an organization of which you are a member. Identify the type of

organization (profit, not-for-profit, government) and locate its mission
statement.
Quote the mission statement and then analyze it to determine if it has the
four
elements described in this chapter as necessary for a well-written mission
statement.

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 Revise the mission statement, if necessary, so that it addresses all four of
the
elements of a well-written mission statement.
2. Describe the pros and cons of assigning a project manager to the project
during the
design phase. Describe how the complexity of the project might affect that
decision.
3. Describe a project with which you are familiar that suffered from lack of
alignment.
Identify the component of alignment that was missing and its effects.
4. Describe the function of a communication matrix and provide an example of
how it
would be used to create, edit, approve, and distribute a particular type of
document.

DISCUSSION
The exercises in this section are designed to promote exchange of information
among
students in the classroom or in an online discussion. The exercises are more
open
ended, which means that what you find might be completely different from what
your
classmates find, and you can all benefit by sharing what you have learned.

1. Effects of lack of trust: Relate an example of a project on which you

worked where
the participants did not know each other well enough to trust each other, and
describe the effect of this lack of trust on the project. Describe alignment
activities
that could have increased trust on that project.
2. Describe an example of a project with which you have been personally
involved
that suffered from undocumented changes in scope. Consider an example provided
by
a classmate and determine if their example is a deviation or a scope change
and if it
requires a scope change, how should it have been handled? Demonstrate your
knowledge of the steps for making scope changes described in the text.
3. What is the mission statement of your college or university? Give an
example of a
recent project undertaken by the organization. Determine if the project
directly
supports the stated mission and explain your opinion.
4. Do you think a communication matrix is necessary on a small project that
only
involves six people? Be prepared to support your opinion with examples.

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 Chapter 8
Project Time Management
The project scope identifies the objectives of the project, what activities will be
performed,
and some of the activities that are not included in the project. The scope document
is used
to create a master schedule that identifies important dates and activities. In this
chapter,
the student learns how the scope and schedule are developed.

Project planning and scheduling is both an art and a science. No two project
managers or
planning professionals develop identical plans or project schedules. The planning
process
is creative and reflects the planner’s approach and style. Even though the project
plan is
unique to the approach and style of the planner, methods for developing the
schedule and
documenting the resulting plan follow certain rules.

On larger and more complex projects, a planning function composed of a small team
of
planning and scheduling experts may be needed to develop and track the project
schedule.

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Project planners facilitate the development of the information required to develop
the
project plan using templates, past or similar projects, and most importantly, the
thoughts
and plans of the project team leaders and members. On a smaller project, the
project
manager may be responsible for accomplishing this planning function.

After gathering this information, the planner begins developing the

project’s master schedule—a summary level schedule that encompasses the entire
project
scope—that includes major events and provides a view of the entire project. Working
with
the project team, the planning continues to include more details as additional
information
becomes available. The schedule continues to evolve during the life of the project,
and
major revisions may be necessary in response to events both inside and outside the
project
that change critical dates on the schedule.

Determining the schedule of activities that comprise the project is a key element
of project
management.

8.1 Types of Schedules
LEARNING OBJECTIVE
1. Define the types of project schedules.

The schedule develops as the project moves from its early conceptual phase into the
execution phase.

Conceptual
When the scope of the project is being determined, a simple schedule that shows the
major
tasks and approximate start and end dates is developed to allow senior management
to

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make decisions about the scope of the project. Detail is not required at this stage
because
entire tasks might be dropped from the scope, or the whole project might not be
approved.

Master
If the project is chosen, a master schedule is created. It has major events and
dates such as
the starting date and the completion date. The master schedule is often part of a
contract.
Changes to the master schedule must be approved using a documented change process
with approval by the project sponsor and client.

Detail
To execute the master schedule, the major activities are broken down into smaller
activities and resources are assigned to those activities. The most detailed
versions or
portions of the schedule may be developed a few weeks prior to the execution of
those
activities and are called two-week plans. Portions of the master schedule that
affect
particular vendors might be sent to them so they can provide detailed activities
that they
would perform.

KEY TAKEAWAY
 Types of schedules vary in detail. A broad, general conceptual schedule is
used in
the earliest phases of the project design. A master schedule with start date,
milestones, and completion date becomes part of the contract and is changed by
mutual agreement using a formal change process. Details are added to the
master
schedule as needed to perform the work of the project activities.

EXERCISES
1. A _________ schedule identifies major types of activities and approximate
start
and end dates for use in decision making about the scope of the project.
2. A schedule of activities that is prepared every two weeks is the _______
schedule.

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 3. How does a conceptual schedule differ from a master schedule?

Conceptual Schedule

Choose an activity that you are considering and describe a conceptual

schedule for
it. Limit the schedule to between five and ten major sections. Make a
rough
estimate of the duration and cost of each phase.

8.2 Elements of Time Management

LEARNING OBJECTIVES
1. Describe a work breakdown structure and how it relates to activities.
2. Describe the use of graphic representations for time management.
According to the Project Management Institute (PMI), project time management
includes
the following elements: [1]

 Define activities
 Sequence activities
 Estimate activity resources
 Estimate activity durations
 Develop schedule
 Control schedule

The list of activities, their relationship to each other, and estimates of

durations and
required resources comprise the work breakdown structure (WBS). The project WBS
is
a hierarchical—classified according to criteria into successive levels—listing
and grouping
of the project activities required to produce the deliverables of the project.
The WBS
represents a breakdown of the project into components that encompass the entire
scope of
the project. Each level of the WBS hierarchy represents a more detailed
description of the

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project work so that the highest level represents broad categories, and the lower
levels
represent increasing amounts of detail.

Larger and more complex projects often require a larger WBS. The size of the WBS is
directly related to the amount of work on the project and how that work is divided
into
work packages. The WBS can be developed around the project phases or the project
units
or functions that will be performing the work. A WBS organized around the project
phases
facilitates the understanding of the amount of work required for each phase of the
project.
A WBS developed around the project units or functions of the project facilitates
the
understanding of the amount of work required for each function.

The following example, named John’s move, has a low level of complexity compared to
a
larger project. Normally, this project would not receive the amount of detailed
planning
described in the following examples, but the authors chose to use a basic project
that is
familiar to most students to help them focus on learning the new concepts.

Changing Jobs
John has a small but important project. He has accepted a job in Atlanta and now
has to
move from Chicago to Atlanta and be there, ready to work, right after the Christmas
holidays. If the furniture arrives in good condition at least two days before John
starts
work, and for less than Five thousand dollars, the project will be a success. The
move to
Chicago five years ago cost five thousand dollars, but John is smarter now and will
use his
friends to help, so he is confident he can stay within budget.

Developing a WBS begins by defining and developing lists of all activities—work

performed
on the project that consumes project resources, including cost and time—needed to
accomplish the work of the project. The first draft of the WBS includes activities
at the
highest level of the hierarchy or the management level and typically includes the
major

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activities or summary activities required to accomplish the deliverables identified
in the
project scope of work.

Top-Level Activities in Move Planning

On John’s move project, these top-level activities are numbered 1.0, 2.0, 3.0, and
so on. For
example, a plan for the move is the major deliverable from 1.0 Plan Move, as shown
below.
Figure 8.3Top Level of WBS

The work breakdown structure is then decomposed—broken down into smaller units. The
1.1, 1.2, and 1.3 numbers are the first subdivision of the work. For example, one
of John’s
Summary Level Activities is Packing (3.0). Although some minor packing (delicate
items:
2.4) are packed under another summary activity, 3.3 is the major packing and
includes the
coordination and support of labor (friends Dion and Carlita). The activity is then
decomposed—separated into basic elements—to the next level by listing the
individual
rooms that need packed, as shown below.

Figure 8.4Major Activity Decomposed into Smaller Activities

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The WBS could be decomposed further to a greater level of detail by listing the
tasks
needed for each activity. For example activity 3.3.3, Pack Bedroom, can be
decomposed into
additional tasks, such as 3.3.3.1 Pack Closet, 3.3.3.2 Pack Drawers, and 3.3.3.3
Pack
Blankets. This type of numbering of the activities is called intelligent numbering.
In
intelligent numbering, the numbering system has meaning so that a member of the
project
team knows something about the activity by the number of the activity. For example,
any
activity associated with packing begins with a 3; even picking up donuts can be an
activity
that supports packing. The donuts are a form of payment for the labor of Dion and
Carlita.

The WBS is developed or decomposed to the level that the manager needs to control
or
manage the project. Typically, larger and more complex projects require a more
detailed
WBS.

Estimation of Duration

After the project team has created the WBS, each activity is reviewed and evaluated
to
determine the duration (how long it will take to accomplish from beginning to end)
and
what resources(time, materials, facilities, and equipment) are needed. An estimate
is an
educated guess based on knowledge, experience, and inference—the process of
deriving
conclusions based on assumptions. The accuracy of the estimate is related to the
quality of
the knowledge and how that knowledge is applied. The person with the most knowledge
may not be the most objective person to provide duration estimates. The person
responsible for the work may also want to build in extra time. Multiple inputs into
the
duration estimate and a more detailed WBS help reduce bias—the making of decisions
based on a prejudged perspective.

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The unit of time used to develop the activity duration is a function of the level
of detail
needed by the user of the schedule. The larger and more complex the project, the
greater
the need for detail, which usually translates into shorter durations for
activities.

Duration Estimate for Training

On a new plant start-up, the plant manager may need to know when the new employees
will start training, when they will be fully trained, and when they can begin
working in the
plant. The plant human resources manager may need to know what skills workers need
and how much time each training class will take. The schedule detail the HR manager
needs
will include activities to locate facilities, schedule training, write contracts
for trainers, and
manage the initiation of training classes. The trainer will need an even greater
level of
detail, which could be measured in days or even hours.

On our John’s move example, the project schedule may have been just as effective
without
detailing the packing of the individual rooms in the old apartment. If we deleted
these
items, would John know when he needed to pack each one of these rooms? If the
answer is
yes, then we may not need that level of detail.

The activity duration is the length of time the activity should take to complete
from
beginning to end. The unit of duration is typically working days but could include
other
units of time such as hours, weeks, or months. The unit chosen should be used
consistently
throughout the schedule.

An important event, such as a ground-breaking ceremony or receipt of occupancy from

the
building inspector, is called a milestone. A milestone has no duration or
resources. It is
simply an indicator of an important point in the project.

Resource Allocation and Calendars

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A common resource constraint is availability. To consider the availability of team
members,
consultants, and key pieces of equipment, you can create a resource calendar for
each that
indicates which days are available and which are days off for a group, an
individual, or a
project asset such as a piece of important equipment. A calendar for team members
from
the same company could be the company calendar that shows working days, weekend
days, and holidays. Individual team members can have individual calendars that show
their
vacation days or other days off, such as parental leave days. If major pieces of
equipment
are only available for certain periods of time, they can be given a resource
calendar.
Resource calendars become important tools when changes must be made to the
schedule.
When a resource calendar is applied to a duration estimate, the duration in days is
distributed across the available calendar days. For example, if the duration is
three days
and the start date of the activity is Thursday, the activity would begin on
Thursday and end
on Monday of the following week, assuming the resource calendar shows that the
person
has the weekend off. If the weekend included an extra day off for a holiday like
Labor Day,
shown in the calendar in Figure 8.6, the completion day of the same three-day
activity
would be pushed to Tuesday.

Figure 8.6

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Nonworking days can be designated in a calendar.

Activity Sequencing

Determining the schedule of a project begins by examining each activity in the WBS
to
determine its relationship to the other activities.

Project Logic
The project logic is the development of the activity sequence or determining the
order in
which the activities will be completed. The process for developing the project
logic involves
identifying the predecessors—activities that come before—and successors—the
activities
that come after.

Project Logic for John’s Move

In our example of John’s move, contacting Dion and Carlita—activity 1.1—comes
before the
lunch meeting is scheduled. You must logically contact Dion and Carlita before you
schedule your Host Planning Lunch—activity 1.2. Your conversation with Dion and
Carlita
will provide you with dates they are available and establish their commitment to
help you
move. Therefore, the conversation with Dion and Carlita is a predecessor to the
Host
Planning Lunch Activity. This relationship is diagramed below.

Figure 8.7Relationship between Two Activities

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These terms define a relationship that is similar to a family relationship like
father and son.
The father exists in time before the son. Similarly, each element of the diagram
can have
predecessor-successor relationships with other elements, just like a father can be
the son
of someone else. Unlike the biological father-son relationship, activities can have
more than
one predecessor.

The relationship between a predecessor activity and a successor activity is called

a dependency. The successor activity starts after and is dependent on the
predecessor
activity. Because the conversation with Dion and Carlita must take place before a
planning
meeting can be scheduled, this is called a natural dependency because the
relationship can
be inferred logically. Activities that have predecessor-successor relationships
occur sequentially—one after the other. Another term for this type of relationship
is finish-
start, which means the first activity must finish before the next one can start.
Refer to the
figure above.

Some activities take place concurrently—at the same time. If they must begin at the
same
time, they have a start-start relationship. If the activities can start at
different times but
they must finish at the same time, they have a finish-finish relationship. Refer
to Figure 8.8.

Figure 8.8

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Concurrent activities can be constrained to finish at the same time or start at the
same
time.

Predecessor Relationships in John’s Move

The figure below shows the activities in John’s move with the predecessors
identified for
thePlan Move and Prepacking groups of activities. Because the finish-start
relationship is by
far the most common, the type of relationship is assumed to be finish-start unless
otherwise mentioned.

Figure 8.9Outline of Activities with Predecessors Identified

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Lag and Lead Times

Most activities in a network diagram have a finish-start relationship. If a certain

amount of
time must go by before a successor activity can begin, the required delay is
called lag time.
For example, concrete does not reach its full strength for several days after it is
poured. Lag
time is required between the end of the pouring process and the beginning of
construction
that puts stress on the concrete as diagrammed in Figure 8.10. Similarly, you must
allow lag
time for payment checks to be processed by the banking system before you can spend
the
money.
Figure 8.10

Required time between activities is lag time.

In some cases, the successor activity can overlap the end of its predecessor
activity and
begin before the predecessor is finished. This is called lead time.

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Lead Time in John’s Move
In John’s move, you might begin separating the small and delicate items that will
be packed
in step 2.3 before you get the packing materials in step 2.1 so that when the
materials are
available, step 2.3 is already partially completed. If the preparing the small
items for
packing can overlap its predecessor and shortens the time it takes to accomplish
both tasks
by a day, it has a lead time of one day.

Figure 8.11

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Overlap is called the lead time of the successor activity.

The characteristics and identifiers of an activity are its attributes.

At this point in the process of analyzing John’s move, each activity has an
identifying code, a
short description, predecessors, and lead or lag times, as shown in a partial table
of
activities in Figure 8.12 "Table of Attributes".

Figure 8.12 Table of Attributes

Milestones

Milestones are significant events in your project. An effective milestone schedule

will
capture the major constraints to the project schedule and provide a summary level
overview of the project. Even though milestone events are significant to the
project, they
consume no resources and have no duration. Milestones are usually indicated on the
project schedule with a diamond and often have a vertical line on a time-scaled
graph to
show the relationship of various schedule paths to the milestone.

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In our John’s move project, we might create a milestone called “all packing
complete” to
represent the date when everything is packed and ready for the moving van. Any
delay in
this date will mean a delay in the arrival of the moving van in Chicago, a delay in
the arrival
of the moving van in Atlanta, and a delay of all the unpacking and other downstream
activities. See Figure 8.13 "Gantt Chart".

Graphic Representations
Relationships between activities are easier to recognize if they are presented
using
graphics such as bar charts or a network of connected boxes.

Bar Charts

The type of bar chart used to illustrate activity relationships in a project is

the Gantt chart.
The Gantt chart was developed by Henry Gantt and used on major projects, including
building the Hoover Dam and the U.S. interstate highway system. [2] The Gantt
chart, also
called a bar chart, is a time-scaled graphic that represents each activity with a
bar that
reflects the duration, start, and finish time, as shown in Figure 8.13 "Gantt
Chart".

Figure 8.13 Gantt Chart

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A Gantt chart is easy to read and provides sufficient information for project team
members
to plan activities within a short time frame. For many larger projects, a two-week
bar chart,
extracted from the larger master schedule, provides the information needed for team
members and contractors to coordinate activity details. The Gantt chart provides
information for simple planning but is limited because a Gantt chart does not
illustrate
complex relationships well.

Network Diagrams

People recognize relationships and patterns more effectively when they look at
diagrams
like the one in Figure 8.14 "Project Network Diagram".
The precedence diagram method (PDM) is a technique for graphically displaying the
logic
of the schedule by placing the activities in boxes with arrows between them to show
the
precedence-successor relationships. The boxes in this type of diagram are
called nodes and
the arrows indicate finish-start relationships. Compare the diagram in Figure 8.14
"Project
Network Diagram" to the outline in Figure 8.9 "Outline of Activities with
Predecessors
Identified" to see how much easier it is to trace a sequential path from one
activity to the
next in the precedence diagram. This type of diagram is also called
aproject network diagram.

Figure 8.14 Project Network Diagram

KEY TAKEAWAYS

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 The work breakdown structure is a list of activities, including estimates
of their
durations, their relationships with others, and the resources assigned to
them.
 Bar charts are used to indicate durations and sequencing where the
relationships
are simple. Network diagrams are used to show complex relationships between
activities.

EXERCISES
1. What is work breakdown structure?
2. If two activities are concurrent and they have the same completion date,
they have
a _______-_______ relationship.
3. A calendar that shows when a person, facility, or key piece of equipment is
available is a __________ calendar.
4. What is the advantage of a network diagram over a bar chart for
illustrating the
critical path?

Compare Charts

Perceptions of graphic representations of data differ among individuals.

Consider the
bar chart and network diagram in this section. Describe which type of chart
conveys
the important aspects of the project best to you personally and why you think
that is
the case. Alternatively, describe which aspects of the project are conveyed to
you best
by which type of chart.

[1] Project Management Institute, Inc., A Guide to the Project Management Body of

Knowledge
(PMBOK Guide), 4th ed. (Newtown Square, PA: Project Management Institute, Inc.,
2008), 129.
[2] Reference.com, “Henry
Gantt,” http://www.reference.com/browse/wiki/Henry_Gantt (accessed July 27, 2009).

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8.3 Critical Path and Float
LEARNING OBJECTIVE
1. Calculate critical path, project float, early start dates, and late start
dates.

The critical path is the path through the network that results in the latest
completion date
of the project.

If any activity on the critical path is delayed, the completion of the project will
be delayed
by an equal amount. It is the path with the greatest total duration. To determine
the critical
path, add the amount of time estimated for the duration of each activity to the
previous
activity to determine which path through the network has the longest total
duration, as
shown in Figure 8.15 "Critical Path". Durations are indicated in days. The critical
path
through these tasks takes at least eight days. Activities on the critical path are
shaded.

Figure 8.15 Critical Path

Early Start Dates

Starting dates can be assigned to each activity by doing a forward pass proceeding

from left
to right in the network diagram beginning with the project start date. The dates
derived by
this method are the early start (ES) dates. The early start date for an activity is
the earliest
date the activity can begin. The estimate considers durations and resource
availability

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 calendars. To calculate early start dates, begin with the project start date
and assign that
date as the start date of activities that have no predecessor activities.
Follow these steps to
calculate the early start dates of subsequent activities, assuming finish-start
relationships:

 Add the predecessor activity’s duration to its start date.

 Add the lag time or subtract the lead time.
 Refer to the resource calendar (or calendars) that applies to the
people and
equipment necessary for the activity, and add the number of off-days that the
activity
would span on those calendars.
 Assign the calculated date as the early start date of the successor
activity.

Forward Pass for John’s Move

John begins planning his move to Atlanta the same day he accepts the job. The
start date in
this example is Monday, November 29, 2010. Tasks 1.1 and 2.1 can both start on
that day,
so the early start dates for tasks 1.1 and 2.1 are November 29. John calculates
the early
start date for the activities. A partial list is provided below. Compare the
figure below and
the figure in the next sidebar. Observe that John is willing to work on
weekends, but
activity 2.2.3 is delayed by two days because one of the moving companies did
not provide
bids on the weekend. Observe that activity 2.3 has a lead time of one day, but
that
relationship is between activity 2.1 and 2.3. The network path from activity
1.3 is longer, so
the lead time with activity 2.1 is not considered in calculating the early
start date of 2.3.

Figure 8.16Early Start Dates Determined by a Forward Pass

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Doing this process manually is error prone and time consuming. Fortunately, there
are
computer programs to assist in the process, but the project manager must understand
the
process well enough to recognize computer errors. Computer software must be
combined
with common sense or good judgment.

Float
Float, sometimes called slack, is the amount of time an activity, network path, or
project can
be delayed from the early start without changing the completion date of the
project.

Total Float

Total float is the difference between the finish date of the last activity on the
critical path
and the project completion date. Any delay in an activity on the critical path
would reduce
the amount of total float available on the project. A project can also
have negative float,
which means the calculated completion date of the last activity is later than the
targeted
completion date established at the beginning of the project.

Float in John’s Move

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 The last activity in John’s move has an early start date of December 28 and a
duration of
one day. John could start work on Wednesday, December 29. John’s first day at
work is
Monday, January 3, so the project has a total float of five days.

Figure 8.17Total Project Float

Late Start Dates

The next step is to work through the network diagram from right to left
beginning with the
mandated completion date, which is a milestone that is set in the project plan.
Subtract the
duration of each activity in each path to determine the latest date the
activity could begin
and still meet the project completion date. Resource calendars must be
considered in the
backward pass as well as the forward pass.

To calculate late start dates, begin with the project completion milestone and
assign that
date as the finish date of its predecessor activities. Follow these steps to
calculate the late
start dates of predecessor activities, assuming finish-start relationships:

 Subtract the predecessor activity’s duration from its late finish date.
 Subtract the lag time or add the lead time to the late finish date.

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 Refer to the resource calendar (or calendars) that applies to the
people and
equipment necessary for the activity, and subtract the number of off days that
the activity
would span on those calendars.
 Assign the calculated date as the late start date of the predecessor
activity.

The difference between the early start date and the late start date for
activities on the
critical path is usually the same as the total float, unless the activities are
affected by the
resource calendars differently in the forward and backward pass. For example,
if a piece of
key equipment is only available for a few days, activities that depend on it
have the same
start and finish dates in the forward and backward passes.

Free Float

If activities that are not on the critical path have a difference between their
early start date
and their late start date, those activities can be delayed without affecting
the project
completion date. The float on those activities is called free float.

KEY TAKEAWAY
 To calculate total project float, begin at the start date and add the
duration of
each activity in each possible path through the network diagram, including
nonworking days from the resource calendars, to determine the early project
end
date. The longest path through the network is the critical path. The
difference
between the early end date and the required completion date of the project
is the
total project float, and the start date of each activity is the early start
date. To
calculate the late start dates, begin with the required project completion
date and
work backward, subtracting the duration of each activity though each
possible
pathway.

EXERCISES
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1. The path through the network diagram that has the longest total duration is
the
__________ path.
2. The difference between the sum of the activity durations along the critical
path and
the project completion date is the project _______.
3. If two sequential activities overlap and the successor activity can begin
three days
before the predecessor begins, those three days are called _________ time.
4. If the last activity in the critical path has a completion date that is
five days later
than the project completion date, the project has a _______ _________ (two
words)
of five days.
5. What is the difference between free float and project float?
6. If an activity has a duration of three days, how do you calculate the
finish date in a
way that considers availability of the resources for that activity?
7. What would be an example of lag time between two activities?

Project Float

Consider a project in which you have been involved that experienced unexpected
delays. Describe how the project’s manager dealt with the delays.
Specifically,
consider if the delay was due to an activity that was on the project’s
critical path, if
people or resources were diverted from other tasks, or if free float existed
in the
original schedule. Describe the ultimate effect on the project’s completion
date.

8.4 Managing the Schedule

LEARNING OBJECTIVES
1. Describe methods of tracking and reporting progress.

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2. Define resource leveling.
3. Describe methods of accelerating the schedule.

To manage a schedule, the project manager must know how the work is progressing
compared to the master schedule and, if necessary, make changes to keep the project
on
time.

Tracking and Reporting Progress

Tracking the schedule performance involves measuring the work performed against the
work expected to be performed with a given expenditure of resources. Periodic
reporting
on the progress of the project provides the project management team with
information on
how the project is performing against expectations and to make decisions and
corrections.
Accurate measurement of schedule performance requires planning during the early
stages
of the project to determine the unit of measure and process for tracking progress.

Reporting Percentage Completed

To determine the percentage of a project that has been completed, the project
manager
must determine what to measure. Some percentages are misleading. For example, a
project
that has completed 25 percent of the scheduled activities does not mean that the
project is
25 percent complete. In our John’s move example, four rooms were to be packed.
After the
bedroom was packed, packing was not 25 percent complete. The kitchen contained five
times as many items and required more delicate, time-consuming packing. John
estimated
that 40 percent of the items to be packed were in the kitchen, 20 percent in the
living room,
20 percent in the bedroom, and the remaining 20 percent in miscellaneous locations.
If the
unit of measure for these activities is items packed, the packing is only 20
percent complete
instead of 25 percent if rooms are the unit of measure.

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The unit of measure for tracking schedule progress is related to the estimate. If
hours of
labor are used as the unit of measure, the percentage of packing is even less
because more
time is estimated to pack each item in the kitchen. As the project management team
estimates the duration for each activity, the amount of work to accomplish the
tasks is
captured in both resources expended and a unit of measure for tracking progress.
The unit
of measure is related to the type of project. On a software development project,
the unit of
measure may be lines of code written. The unit of measure that is chosen can affect
the
quality of the work.

Units of Measure on a Programming Project

Steve Ballmer of Microsoft recalls early clashes with IBM over the unit of measure
used to
determine how much Microsoft would get paid for its work.

In IBM there’s a religion in software that says you have to count K-LOCs, and a K-
LOC is a
thousand lines of code. How big a project is it? Oh, it’s sort of a 10 K-LOC
project. This is a
20 K-LOCer. And this is 50 K-LOCs. And IBM wanted to sort of make it the religion
about
how we got paid. How much money we made off OS/2, how much they did. How many K-
LOCs did you do? And we kept trying to convince them—hey, if we have—a developer’s
got
a good idea and he can get something done in 4 K-LOCs instead of 20 K-LOCs, should
we
make less money? Because he’s made something smaller and faster, less KLOC. K-LOCs,
K-
LOCs, that’s the methodology. Ugh anyway, that always makes my back just crinkle up
at
the thought of the whole thing. [1]

In this case, IBM’s insistence on using thousands of lines of code as the unit of
measure did
not reward Microsoft for writing smaller code that would run faster. Microsoft and
IBM
cancelled their joint project for writing an operating system named OS/2. Microsoft
wrote
Windows, and IBM’s OS/2 operating system was not able to compete with it
successfully.

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On a construction project, a unit of measure may be yards of concrete poured, and
on a
training project, the unit of measure may be the class curriculums developed or the
students taught.

Managing Schedules Using Milestones

Milestones provide the opportunity for project management to focus on completing

activities that will have the greatest impact on the schedule. On complex projects,
focusing
on the milestones is useful for communicating important dates to the entire project
team.
Project team members can then adjust their efforts to complete the activities
connected to
the milestone events.

Many project leaders believe that time lost on early activities can be made up
toward the
end of the project. Hard decisions about paying overtime and working weekends are
often
delayed until the end of the project when the pressure to complete the project on
time
becomes much stronger. Project managers who focus on milestone events create a
sense of
urgency to meet the milestone deadlines and spread the urgency to complete the
project
over the life of the project. Projects that meet milestone dates are more likely to
meet
project completion dates.

Informing Stakeholders

A schedule update is distributed regularly to provide project stakeholders with an

assessment of the progress of the project against the master schedule. This updated
schedule is called thecurrent schedule. The current schedule provides new start and
end
dates for all activities and the project. Calculations based on the current
schedule may
result in a new critical path and subsequent changes in the project execution plan.

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The project team develops an understanding of the project productivity by comparing
the
current schedule to the original schedule. If the schedule is behind original
estimates, the
project team conducts an assessment of the causes of the schedule slippage and
develops a
plan to address the changes to the project. The project management team typically
has
several alternatives for addressing changes to the project situation. Selecting the
right
alternative requires good information.

Resource Leveling

The schedule of activities is constrained by the availability of resources. If you

apply the
resource calendar to each activity to be sure the people and equipment are
available on
those dates, you can still miss an important constraint. If there are several
activities that
use a particular person’s time on the same days, that person could end up with too
many
activities scheduled for the same days and very little on other days. If key people
are
overloaded, the activities to which they are assigned might not be completed on
time.
Managing the schedule of activities to ensure that enough resources are available
to
complete each task by distributing the work load is calledresource leveling.
Activities to
which that person is assigned and that have free float can be delayed to reduce
work
overload of key people.

Accelerating the Schedule

The project manager must know how to accelerate a schedule to compensate for
unanticipated events that delay critical activities or to accommodate changes in
the project
completion date. Compressing or crashing the schedule are terms used to describe
the
various techniques used to shorten the project schedule. Project managers utilize
several
techniques to keep projects on schedule.

Contingency Resources

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One method of accelerating the schedule is to add activities to the critical path
that are
empty or that are optional. If the project is behind schedule, the time can be made
up by
dropping these activities. This extra time that is built into the schedule is
called contingency time, buffer, or reserve time.

Reassigning Resources

Activities that are not on the critical path that have free float can be delayed
without
delaying the end date of the project if they start by the late start date. Project
managers can
divert some resources from activities with free float to activities on the critical
path
without delaying the completion of the project.

Changing Scope

The unit cost of work to be performed on a project is calculated at the beginning

of the
project based on the execution strategy of the project to meet the project
completion date.
If the project completion date is moved up, then the unit cost of work will likely
increase.
Conversely, a project team may be able to save money by extending the project end
date.
With more time, the project team may be able to schedule activities in such a way
to reduce
their costs. For example, an activity requiring overtime to be paid can now pay the
labor at
normal rates, saving the overtime premium. Changing elements of the master schedule
means a change in scope. Scope changes often affect costs and require agreement by
the
parties who signed the original scope documents.

Additional Resources

Another option is to allocate funds that can be used to add resources if necessary.
Available
resources can be increased by adding overtime to existing resource calendars or by
hiring
additional contract workers or renting additional equipment.

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Adding Resources to the Dreamliner Project
When Boeing sales of the new 878 Dreamliner Airplane exceeded expectations,
contractors
who were building the plane were asked to increase production while maintaining all
quality and safety requirements. All contractors involved in the plane production
were
affected by this change.

One project team was responsible for developing and delivering training to the new
employees who would be building the fuselage of the Dreamliner. Training for new
employees had to be complete three months early and the project team developed an
execution strategy to meet the new deadlines. The project had a month of float, so
the
project accelerated the schedule by two months. The team authorized overtime from
forty
to fifty hours a week for team members working activities on the critical path. The
project
team leased additional space and hired contractors to perform selected work
packages on
the critical path and delayed the production of library quality documents until
after the
critical dates on the project. Authorizing overtime and hiring contractors added a
15
percent cost to the project. Overtime and the procurement of additional contract
help was
authorized only for work packages on the critical path because work not on the
critical
path would not accelerate the schedule.

A concrete contractor on a construction project may be scheduled to lay one

thousand
yards of a building foundation by pouring one hundred yards a day for ten days.
Foundations are on the critical path, and because of rain, the project is three
days behind
schedule. The project manager asked the concrete contractor to bring in a second
crew and
pour two hundred yards a day, and the work is complete in five days.

Changing Quality

Another option for accelerating the schedule is the changing of the quality
specifications of
the product. This is usually done as a scope change.

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Making Up Time by Reducing Quality
At a midwestern university, a new building was being built, but it was behind
schedule. To
speed up the installation of the heating and cooling equipment, it was decided to
make the
zones of control larger, which meant that each floor would have fewer points where
temperature was sensed and controlled and fewer air flow control boxes. The
contract did
not specify the zone size or how many control points were required on each floor of
the
building, so this change did not require a change in scope. As a result, when the
sun is
coming in on the south side of the building, those rooms get as much heat or
cooling as the
rooms on the north side, so they are often too hot. If the single temperature
controller on
each floor is set to a lower temperature, the rooms on the north side are too cold.
The client
for the building did not realize this change had been made until they were in the
building
for several months and the project was completed.

KEY TAKEAWAYS
 Progress can be measured by determining the percentage of resources
expended,
completion of activities by scheduled dates, milestones achieved, or fraction
of
activities accomplished. Standards used to measure progress, particularly when
partial
payment to contractors is concerned, should be specified in contract documents.
 Resource leveling is reallocating people and equipment to remove periods of
overuse or underuse.
 Unplanned delays and costs can be anticipated by including contingency time
and
budget amounts where needed to keep the schedule on time. Resource allocation
and
resource calendars should be examined to determine if a resource is
overcommitted.
Free float can be used to delay noncritical activities that use the same
resource to
allocate its time more evenly. If it is necessary to accelerate the schedule,
activities
that are not on the critical path can be delayed using their free float and
their
resources can be moved to activities on the critical path to complete them
sooner.
Contingency resources can be committed to speeding up the activities. If
necessary,
the scope can be changed to bring in additional resources or lower the quality.

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 EXERCISES
1. Accelerating the project schedule is also known as ________ the project.
2. Extra amounts of time and money that are built into the schedule to buffer
against
delays and extra costs are called ___________ time or funds.
3. What might be a drawback to a reporting method that stated project progress
as a
fraction of activities completed?
4. How does a manager accelerate a project by using free float?

Progress Reports

From the client’s point of view, describe what you think would be the
advantages of
each type of progress measurement.

[1] Robert X. Cringely, Triumph of the Nerds, June

1996, http://www.pbs.org/nerds/part2.html (accessed July 27, 2009).

8.5 Project Scheduling Software

LEARNING OBJECTIVES
1. Describe the relationship between the choice of software and project
complexity.
2. Identify the features that should be considered when selecting software for
project
management.
Low-complexity projects can be managed with lists of activities on paper or by
using an
outline in word processing or spreadsheet software. This software is inadequate for
tracking complex projects. Fortunately, there are several dedicated software
programs that
keep track of the complex relationships between activities and resources.

Appropriate to Project Complexity

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 Simple projects can be tracked using general purpose word processing and
spreadsheet
software like those available in Microsoft Office or OpenOffice. Medium-
complexity projects
benefit from dedicated project management software such as Microsoft Project
and
OpenProject. Complex projects require software that can track the interactions
of
thousands of tasks and produce sophisticated reports such as Oracle’s P6.

Features

There are dozens of computer software programs available with a wide range of
prices.
Some open source software programs are free, but others cost up to a thousand
dollars.
There are several considerations for selecting a project management software
besides
price.

Currently Used Software

Use software that is already in use and with which most team members are
already
familiar. If software that is used by most team members is appropriate to the
complexity of
your project, it is the default choice. It is also valuable to know what
software is used by
key vendors or project partners so files can be exchanged electronically in the
same format.
Basic Features

Any project management software that is selected must have the ability to track
and
display basic features such as the following:

 Durations
 Relationships
 Milestones
 Start and end dates
 Resource calendars
 Graphic displays using Gantt and network charts

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 Collaboration

Team members should be able to view the project schedule. Some software
products
require the use of expensive proprietary software that runs on the company’s
server and
that will allow several different team members to use the same schedule and
restricts the
use of the software to team members who have access to the company’s computer
system.
Other software products use a server on the Internet that is open to team
members and
vendors who have valid passwords.

Advanced Features

For more complex projects, look for advanced features, such as the following:

 Issue tracking that tracks problems, actions, and resolutions

 Project portfolio management that tracks and compares groups of related
projects
 Automatic resource leveling and alerts when a resource is overscheduled
 Document management feature that tracks contracts, bids, scope changes,
and
incidents

KEY TAKEAWAYS
 Medium- to high-complexity projects usually require the use of software
that is
designed specifically for managing projects.
 Features to look for when choosing project management software include
(1)
compatibility with existing software at the company or its vendors, (2)
basic features
for managing medium-complexity projects, (3) a method for collaboration
between
team members, and (4) if needed, advanced features for managing multiple
projects.

EXERCISES

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1. When choosing software, the new software should be __________ with the
software currently in use and with the software used by vendors and partners.
2. How does the complexity of the project affect the choice of software used
to
manage it?
3. What is an example of an advanced feature that is available for managing
the most
complex projects? Explain why this feature is needed for complex projects.

Learning New Software

Describe the methods that work best for you when you learn a new computer
program, such as self-directed exploration, a textbook, self-paced tutorials,
or
organized classes with an instructor. If you wanted to require that all the
members of
your ten-person team use project management software that was new to all of
them,
how would you recommend that they learn the software?

8.6 Exercises
Exercises at the end of the chapter are designed to strengthen your understanding
and
retention of the information recently acquired in the chapter.

ESSAY QUESTIONS
Write several paragraphs to provide more in-depth analysis and consideration
when
answering the following questions.

1. Compare the Gantt and Network charts. Describe the uses of each type of
chart.
2. Choose a project with which you are familiar (it could be a simple project
like
John’s move) and describe how the project could be crashed using each of the
methods described in the text.

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3. Describe what size project could be done using general purpose word
processing
and spreadsheet software and how you could structure the data in those
documents
to make it easier to transfer that data into a project management software, if
necessary.

DISCUSSION
The exercises in this section are designed to promote exchange of information
among
students in the classroom or in an online discussion. The exercises are more
open
ended, which means that what you find might be completely different from what
your
classmates find, and you can all benefit by sharing what you have learned.

1. Describe a personal experience where the average amount of work required of

you
was appropriate but the scheduling of that work was so uneven that there were
periods when you could not get the work done on time and other periods when
you
did not have enough to do. Describe how you would have used resource leveling
and
free float to distribute your workload if you had been the manager. Consider
the
situations and solutions offered by classmates and suggest other ways they
could have
distributed their workloads more evenly.
2. Describe your experience working with a spreadsheet to manage data such as
expenses or activities. How would the ability to treat them like data by
sorting and
filtering help you to prepare reports?

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 Chapter 9
Estimating and Managing Costs

An important part of a project manager’s job is managing money. All types of

organizations
must manage their money well in order to fulfill their mission, including not-for-
profit and
government organizations. The tools and methods used to manage money on a project
vary
depending on the phase and complexity of the project. This chapter describes the
methods
used to estimate the cost of a project, create a budget, and manage the cost of
activities
while the project is being executed.

9.1 Estimating Costs
LEARNING OBJECTIVES
1. Describe methods of estimating costs.
2. Identify the effects of project phase and complexity on the choice of
estimating
method.
3. Describe the method of combining cost estimates with a schedule to create a
budget.

Estimating Costs to Compare and Select Projects

During the conceptual phase when project selection occurs, economic factors are an
important consideration when choosing between competing projects. To compare the
simple paybacks or internal rates of return between projects, an estimate of the
cost of

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each project is made. The estimates must be accurate enough so that the comparisons
are
meaningful, but the amount of time and resources used to make the estimates should
be
appropriate to the size and complexity of the project. The methods used to estimate
the
cost of the project during the selection phase are generally faster and consume
fewer
resources than those used to create detailed estimates in later phases. They rely
more on
the expert judgment of experienced managers who can make accurate estimates with
less
detailed information. Estimates in the earliest stages of project selection are
usually made
using estimates based from previous projects that can be adjusted—scaled—to match
the
size and complexity of the current project or by applying standardized formulas.

Analogous Estimate

An estimate that is based on other project estimates is an analogous estimate. If a

similar
project cost a certain amount, then it is reasonable to assume that the current
project will
cost about the same. Few projects are exactly the same size and complexity, so the
estimate
must be adjusted upward or downward to account for the difference. The selection of
projects that are similar and the amount of adjustment needed is up to the judgment
of the
person who makes the estimate. Normally, this judgment is based on many years of
experience estimating projects, including incorrect estimates that were learning
experiences for the expert.

Analogous Estimate for John’s Move

In the John’s move example, John asked a friend for advice about the cost of his
move. His
friend replied, “I moved from an apartment a little smaller than yours last year
and the
distance was about the same. I did it with a fourteen-foot truck. It cost about
$575 for the
truck rental, pads, hand truck, rope, boxes, and gas.” Because of the similarity of
the
projects, John’s initial estimate of the cost of the move was less than $700 and he
decided
that the cost would be affordable and the project could go forward.

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Less experienced managers who are required to make analogous estimates can look
through the documentation that is available from previous projects. If those
projects were
evaluated using the Darnall-Preston Complexity Index (DPCI), the manager can
quickly
identify projects that have similar profiles to the project under consideration
even if those
projects were managed by other people. Comparing the original estimates with the
final
project costs on several previous projects with the same DPCI ratings gives a less
experienced manager the perspective that it would take many years to acquire by
trial and
error. It also provides references the manager can use to justify the estimate.

Parametric Estimate

If the project consists of activities that are common to many other projects,
average costs
are available per unit. For example, if you ask a construction company how much it
would
cost to build a standard office building, they will ask for the size of the
building in square
feet and the city in which the building will be built. From these two factors—size
and
location—the company’s estimator can predict the cost of the building. Factors like
size and
location are parameters—measurable factors that can be used in an equation to
calculate a
result. The estimator knows the average cost per square foot of a typical office
building and
adjustments for local labor costs. Other parameters such as quality of finishes are
used to
further refine the estimate. Estimates that are calculated by multiplying measured
parameters by cost-per-unit values areparametric estimates.

Parametric Estimate for John’s Move

To estimate the size of the truck needed for John’s move, the parameter used by a
truck
rental company is the number of bedrooms, as shown below.

Figure 9.1Number of Bedrooms Used for Parametric Cost Estimate

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The moving company assumes that the number of bedrooms is the important parameter
in
determining how big a truck is needed for a move. For John’s move, he has a one-
bedroom
apartment, so he chooses the fourteen-foot truck. Once the size is determined,
other
parameters, such as distance and days, are used to estimate the cost of the truck
rental.

Estimating Costs to Initiate Projects

Once the project is selected, more accurate estimates are often needed to raise
funds and
agree on contracts with vendors in the initiation phase.

Estimate During the Initiation Phase of John’s

Move
John recalled that his friend also told him how tiring it was to do all the
packing, loading,
and driving himself, and some items were damaged when the load shifted inside the
truck
during the trip. John decides to call in favors from two friends, Dion and Carlita,
to help him
pack in Chicago and to hire some of the skilled labor like that needed to load the
truck
properly.

Vendor Bid Analysis

If services or products will be provided by vendors, the cost of those services can
be
determined by issuing a request for proposal (RFP). The RFP describes the work,
service,

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or product to be provided by the vendor and the quality level required. The RFP is
sent to a
list of vendors who arequalified—meet standards of reliability and capability—to
perform
this type of work. They respond with a proposal for completing the work described
in the
RFP, including an estimate of the cost. Some government organizations are required
to use
the qualified vendor with the lowest bid. Other organizations are not bound to take
the
lowest bid but are usually required to justify their reasons for not doing so.

Using RFPs to Make Estimates on John’s Move

John wants to find out how much it would cost to hire a skilled crew to load and
secure the
furniture in the truck and then have another crew from the same company meet him in
Atlanta to unload the truck and help him unpack. He is not sure if any companies
offer this
option, so he decides to ask three moving companies for bids. He also decides to
ask for
bids on a standard move that includes all phases of packing, loading,
transportation, and
unloading as a comparison to see if his cost-saving plan is worth the extra effort.

The project management team can review the responses by several vendors to the RFP
to
determine if their estimate of the cost of that aspect of the project is close to
the estimate
made during the project selection stage. If the estimates by the vendors are much
higher
than expected, and if the project cannot be completed for the cost that was used to
select
the project, the selection decision might have to be reconsidered. Reconsidering
the
selection of the project should take into consideration the economic ratings of the
competing projects that were not chosen and who the project champions are for the
projects that would be affected.

Some vendors may suggest an alternative way to meet the objective of the RFP in a
more
cost-effective manner that does not match the specifics of the RFP. Such
alternatives can
reduce costs if they are acceptable.

Bottom-Up Estimating
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The most accurate and time-consuming estimating method is to identify the cost of
each
item in each activity of the schedule, including labor and materials. If you view
the project
schedule as a hierarchy where the general descriptions of tasks are at the top and
the lower
levels become more detailed, finding the price of each item at the lowest level and
then
summing them to determine the cost of higher levels is called bottom-up estimating.

Bottom-Up Estimate for John’s Move

After evaluating the bids by the moving companies, John decides the savings are
worth his
time if he can get the packing done with the help of his friends. He decides to
prepare a
detailed estimate of costs for packing materials and use of a rental truck. He
looks up the
prices for packing materials and truck rental costs on company Web sites and
prepares a
detailed list of items, quantities, and costs, as shown below.

Figure 9.2Detailed Cost Estimate

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This type of estimate is typically more accurate than an analogous or parametric
estimate. In this example, the sum of packing materials and truck expenses is
estimated to be $661.25.

The detail can be rolled up—subtotaled—to display less detail. This process is made
easier
using computer software. On projects with low complexity, the cost estimates can be
done
on spreadsheet software.

Rolling Up a Detailed Cost Estimate for John’s

Move
For example, the subtotal feature could be used in Excel and collapsed to show the
subtotals for the two categories of costs, as shown below.
Figure 9.3Sum of Detailed Costs by Type

On larger projects, software that manages schedules can also manage costs and
display
costs by activity and by category.
Activity-Based Estimates
An activity can have costs from more than one vendor plus costs for labor and
materials
from internal sources. Detailed estimates from all sources can be reorganized so
those
costs that are associated with a particular activity can be grouped by adding the
activity
code to the detailed estimate, as shown in Figure 9.4 "Detailed Costs Associated
with
Activities".
Figure 9.4 Detailed Costs Associated with Activities

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The detailed cost estimates can be sorted by activity and then subtotaled by
activity to
determine the cost for each activity.

Establishing a Budget

Once the cost of each activity is estimated, it is possible to determine how much
money is
needed for each group of tasks and for the whole project.

Cost of Tasks

The cost of each group of activities of the project can be estimated by summing the
costs of
the components of each activity in the group. This process of subtotaling costs by
category
or activity is called cost aggregation.

Budget Timeline

Because the costs are associated with activities and each activity has a start date
and a
duration, it is possible to calculate how much money needs to be spent by any
particular
date during the project. The money needed to pay for a project is usually
transferred to the
project account shortly before it is needed. These transfers must be timed so that
the
money is there to pay for each activity without causing a delay in the start of the
activity. If

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the money is transferred too far in advance, the organization will lose the
opportunity to
use the money somewhere else, or they will have to pay unnecessary interest charges
if the
money is borrowed. A schedule of money transfers is created that should match the
need to
pay for the activities. The process of matching the schedule of transfers with the
schedule
of activity payments is called reconciliation. Refer toFigure 9.5 "Fund Transfers
and
Expenditures" that shows the costs of ten major activities in a project. Funds are
transferred into the project account four times. Notice that during most of the
project, there
were more funds available than were spent except at activity 6 when all the
available funds
were spent.

Figure 9.5 Fund Transfers and Expenditures

In the project budget profile shown in Figure 9.5 "Fund Transfers and
Expenditures", there
is no margin for error if the total of the first six activities exceeds the amount
of funding at
that point in the project.
Contractual agreements with vendors often require partial payment of their costs
during
the project. Those contracts can be managed more conveniently if the unit of
measure for
partial completion is the same as that used for cost budgeting. For example, if a
contractor

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is pouring concrete for a large project, their contract may call for partial
payment after 25
percent of the total volume of concrete is poured as determined by cubic yards of
concrete.

KEY TAKEAWAYS
 Analogous estimating scales an estimate from a similar project to match the
current project. Parametric estimating multiplies a standard cost-per-unit
value by
the number of units in the project. Bids from contractors can be compared to
estimate costs. Bottom-up estimating determines the cost of each detail and
aggregates them to determine activity cost estimates.
 During the project selection and approval stage, rough estimates are used
that
are usually obtained using analogous and parametric methods. Vendor bid
analysis and detailed bottom-up estimates are used in the initiation phase to
estimate project costs.
 Detailed estimates are associated with activities and aggregated during the
planning phase to create an activity-based budget. Funding transfers are
arranged
to reconcile money spent to money from funding sources in a timely manner.

EXERCISES
1. An estimate that is obtained by scaling up an estimate from a similar
project is a(n)
___________ estimate.
2. An estimate that uses standard costs per unit such as price per square foot
or price
per cubic yard is a ____________ estimate.
3. Matching the transfer of funds into the project account with the money
spent is
called __________________.

Estimates

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 Consider a project in which you have been involved that used an estimating
technique
to provide numbers for the conceptual plan. Briefly describe the type of
project and
identify the estimating method used.

9.2 Managing the Budget

LEARNING OBJECTIVES
1. Describe methods to manage cash flow.
2. Describe the terms and relationships of budget factors used in earned value
analysis.
3. Calculate and interpret budget and schedule variances.
4. Calculate and interpret the schedule performance index and the cost
performance
index.
5. Calculate and interpret estimates to complete the project.
6. Calculate the revised final budget.

Projects seldom go according to plan in every detail. It is necessary for the

project manager
to be able to identify when costs are varying from the budget and to manage those
variations.

Managing Cash Flow

If the total amount spent on a project is equal to or less than the amount
budgeted, the
project can still be in trouble if the funding for the project is not available
when it is needed.
There is a natural tension between the financial people in an organization, who do
not want
to pay for the use of money that is just sitting in a checking account, and the
project
manager, who wants to be sure that there is enough money available to pay for
project
expenses. The financial people prefer to keep the company’s money working in other
investments until the last moment before transferring it to the project account.
The

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contractors and vendors have similar concerns, and they want to get paid as soon as
possible so they can put the money to work in their own organizations. The project
manager would like to have as much cash available as possible to use if activities
exceed
budget expectations.

Contingency Reserves

Most projects have something unexpected occur that increases costs above the
original estimates. If
estimates are rarely exceeded, the estimating method should be reviewed because the
estimates

are too high. It is not possible to predict which activities cost more than
expected, but it is
reasonable to assume that some of them will be. Estimating the likelihood of such
events is part of

risk analysis, which is discussed in more detail in a later chapter.

Instead of overestimating each cost, money is budgeted for dealing with unplanned
but statistically
predictable cost increases. Funds allocated for this purpose are

called contingency reserves. [1]Because it is likely that this money will be spent,

it is part of the total
budget for the project. If this fund is adequate to meet the unplanned expenses,
then the project will

complete within the budget.

Management Reserves

If something occurs during the project that requires a change in the project scope,
money
may be needed to deal with the situation before a change in scope can be negotiated
with
the project sponsor or client. It could be an opportunity as well as a challenge.
Money can
be made available to the project to be used at the discretion of the manager to
meet needs
that would change the scope of the project. These funds are
called management reserves.
Unlike contingency reserves, they are not likely to be spent and are not part of
the project’s
budget baseline, but they can be included in the total project budget. [2]

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Evaluating the Budget During the Project
A project manager must regularly compare the amount of money spent with the
budgeted
amount and report this information to managers and stakeholders. It is necessary to
establish an understanding of how this progress will be measured and reported.

Reporting Budget Progress on John’s Move

In the John’s move example, he estimated that the move would cost about $1,500 and
take
about sixteen days. Eight days into the project, John has spent $300. John tells
his friends
that the project is going well because he is halfway through the project but has
only spent a
fifth of his budget. John’s friend Carlita points out that his report is not
sufficient because
he did not compare the amount spent to the budgeted amount for the activities that
should
be done by the eighth day.

As John’s friend points out, a budget report must compare the amount spent with the
amount that is expected to be spent by that point in the project. Basic measures
such as
percentage of activities completed, percentage of measurement units completed, and
percentage of budget spent are adequate for less complex projects, but more
sophisticated
techniques are used for projects with higher complexity.

Earned Value Management

A method that is widely used for medium- and high-complexity projects is

theearned value management (EVM) method. EVM is a method of comparing the budgeted
and actual costs of a project periodically during the project. It combines the
scheduled
activities with detailed cost estimates of each activity. It allows for partial
completion of an
activity if some of the detailed costs associated with the activity have been paid
but others
have not. The earned value analysis method compares the anticipated cost of work
that is

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scheduled to be done at a given point in time against what has been done and how
much it
actually cost.

The Budgeted Cost of Work and Planned Value

The budgeted cost of work scheduled (BCWS) comprises the detailed cost estimates

for
each activity in the project. The amount of work that should have been done by a
particular
date is theplanned value (PV). These terms are used interchangeably by some
sources, but
the planned value term is used in formulas to refer to the sum of the budgeted cost
of work
up to a particular point in the project, so we will make that distinction in the
definitions in
this text for clarity.

Planned Value on Day Six of John’s Move

On day six of the project, John should have taken his friends to lunch and
purchased the
packing materials. The portion of the BCWS that should have been done by that date
(the
planned value) is listed in Figure 9.6 "Planned Value for Lunch and Packing
Materials". This
is the planned value for day six of the project.

Figure 9.6 Planned Value for Lunch and Packing Materials

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Budgeted Cost of Work Performed and Earned Value

The budgeted cost of work performed (BCWP) is the budgeted cost of work scheduled

that
has been done. If you sum the BCWP values up to that point in the project schedule,
you
have theearned value (EV).
Actual Cost

The amount spent on an item is often more or less than the estimated amount that
was
budgeted for that item. The actual cost (AC) is the sum of the amounts actually
spent on the
items.

Comparing PV, EV, and AC in John’s Move on Day

Six
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Dion and Carlita were both trying to lose weight and just wanted a nice salad.
Consequently, the lunch cost less than expected. John makes a stop at a store that
sells
moving supplies at discount rates. They do not have all the items he needs, but the
prices
are lower than those quoted by the moving company. They have a very good price on
lifting
straps so he decides to buy an extra pair. He returns with some of the items on his
list, but
this phase of the job is not complete by the end of day six. John bought half of
the small
boxes, all of five other items, twice as many lifting straps, and none of four
other items. John
is only six days into his project, and his costs and performance are starting to
vary from the
plan. Earned value analysis gives us a method for reporting that progress. Refer to
the
figure below.
Figure 9.7Planned Value, Earned Value, and Actual Cost

The original schedule called for spending $261.65 (PV) by day six. The amount of
work
done was worth $162.10 (EV) according to the estimates, but the actual cost was
only
$154.50 (AC).

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Schedule Variance

The project manager must know if the project is on schedule and within the budget.
The
difference between planned and actual progress is the variance.
The schedule variance (SV) is the difference between the earned value (EV) and the
planned value (PV). Expressed as a formula, SV = EV − PV. If less value has been
earned
than was planned, the schedule variance is negative, which means the project is
behind
schedule.

Schedule Variance on John’s Move

Planning for John’s move calls for spending $261.65 by day six, which is the
planned value
(PV). The difference between the planned value and the earned value is the
scheduled
variance (SV). The formula is SV = EV − PV. In this example, SV = $162.10 − $261.65
=
$(99.55) A negative SV indicates the project is behind schedule.

The difference between the earned value (EV) and the actual cost (AC) is
the cost variance (CV). Expressed as a formula, CV = EV − AC

Cost Variance on John’s Move

The difference between the earned value of $162.10 and the actual cost of $154.50
is the
cost variance (CV). The formula is CV = EV − AC. In this example, CV = $162.10 −
$154.50 =
$7.60.

A positive CV indicates the project is under budget.

Variance Indexes for Schedule and Cost

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The schedule variance and the cost variance provide the amount by which the
spending is
behind (or ahead of) schedule and the amount by which a project is exceeding (or
less
than) its budget. They do not give an idea of how these amounts compare with the
total
budget.

The ratio of earned value to planned value gives an indication of how much of the
project is
completed. This ratio is the schedule performance index (SPI). The formula is SPI =
EV/PV.
In the John’s move example, the SPI equals 0.62 (SPI = $162.10/$261.65 = 0.62) A
SPI value
less than one indicates the project is behind schedule.

The ratio of the earned value to the actual cost is

the cost performance index (CPI). The
formula is CPI = EV/AC.

Cost Performance Index of John’s Move

In the John’s move example, CPI = $162.10/$154.50 = 1.05 A value greater than 1
indicates
the project is under budget.

Figure 9.8Schedule Variance and Cost Variance on Day Six of the John’s Move Project

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The cost variance of positive $7.60 and the CPI value of 1.05 tell John that he is
getting
more value for his money than planned for the tasks scheduled by day six. The
schedule
variance (SV) of negative $99.55 and the schedule performance index (SPI) of 0.62
tell him
that he is behind schedule in adding value to the project.
During the project, the manager can evaluate the schedule using the schedule
variance (SV)
and the schedule performance index (SPI) and the budget using the cost variance
(CV) and
the cost performance index (CPI).

Estimated Cost to Complete the Project

Partway through the project, the manager evaluates the accuracy of the cost
estimates for
the activities that have taken place and uses that experience to predict how much
money it
will take to complete the unfinished activities of the project—
the estimate to complete (ETC).

Atypical Cost Variance

To calculate the ETC, the manager must decide if the cost variance observed in the
estimates to that point are representative of the future. For example, if unusually
bad
weather causes increased cost during the first part of the project, it is not
likely to have the
same effect on the rest of the project. If the manager decides that the cost
variance up to
this point in the project is atypical—not typical—then the estimate to complete is
the
difference between the original budget for the entire project—
the budget at completion (BAC)—and the earned value (EV) up to that point.
Expressed as
a formula, ETC = BAC − EV

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Estimate to Complete John’s Move
In John’s move, John was able to buy most of the items at a discount house that did
not have
a complete inventory and, he chose to buy an extra pair of lift straps. He knows
that the
planned values for packing materials were obtained from the price list at the
moving
company where he will have to buy the rest of the items, so those two factors are
not likely
to be typical of the remaining purchases. The reduced cost of lunch is unrelated to
the
future costs of packing materials, truck rentals, and hotel fees. John decides that
the factors
that caused the variances are atypical. He calculates that the estimate to complete
(ETC) is
the budget at completion ($1,534) minus the earned value at that point ($162.10),
which
equals $1,371.90. Expressed as a formula, ETC = $1,534 − $162.10 = $1,371.90.

Typical Cost Variance

If the manager decides that the cost variance is caused by factors that will affect
the
remaining activities, such as higher labor and material costs, then the estimate to
complete
(ETC) needs to be adjusted by dividing it by the cost performance index (CPI). For
example,
if labor costs on the first part of a project are estimated at $80,000 (EV) and
they actually
cost $85,000 (AC), the cost variance will be 0.94. (Recall that the cost variance =
EV/AC).

To calculate the estimate to complete (ETC) assuming the cost variance on known
activities
is typical of future cost, the formula is ETC = (BAC – EV)/CPI. If the budget at
completion
(BAC) of the project is $800,000, the estimate to complete is ($800,000 –
$80,000)/0.94 =
$766,000.

Estimate Final Project Cost

If the costs of the activities up to the present vary from the original estimates,
it will affect
the total estimate for the project cost. The new estimate of the project cost is
theestimate at completion (EAC). To calculate the EAC, the estimate to complete
(ETC) is

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added to the actual cost (AC) of the activities already performed. Expressed as a
formula,
EAC = AC + ETC.

Estimate at Completion for John’s Move

The revised estimate at completion (EAC) for John’s move at this point in the
process is
EAC = $154.50 + $1,371.90 = $1,526.40.

Refer to Figure 9.9 "Summary of Terms and Formulas for Earned Value Analysis" for a
summary of terms and formulas.

Figure 9.9 Summary of Terms and Formulas for Earned Value Analysis

KEY TAKEAWAYS
 Extra money is allocated in a contingency fund to deal with activities
where costs
exceed estimates. Funds are allocated in a management reserves in case a
significant
opportunity or challenge occurs that requires change of scope but funds are
needed
immediately before a scope change can typically be negotiated.

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 Schedule variance is the difference between the part of the budget that has
been
done so far (EV) versus the part that was planned to be completed by now (PV).
Similarly, the cost variance is the difference between the EV and the actual
cost (AC).
 The schedule performance index (SPI) is the ratio of the earned value and
the
planned value. The cost performance index (CPI) is the ratio of the earned
value (EV)
to the actual cost (AC).
 The formula used to calculate the amount of money needed to complete the
project (ETC) depends on whether or not the cost variance to this point is
expected to
continue (typical) or not (atypical). If the cost variance is atypical, the
ETC is simply the
original total budget (BAC) minus the earned value (EV). If they are typical
of future
cost variances, the ETC is adjusted by dividing the difference between BAC and
EV by
the CPI.
 The final budget is the actual cost (AC) to this point plus the estimate to
complete
(ETC).

EXERCISES
1. Money that is allocated for dealing with unplanned but predictable expenses
is
_________ reserve.
2. The formula used to calculate the cost performance index is ____________.
3. The formula used to calculate the estimate to complete for atypical cost
variances
is _________________________.
4. The sum of the budgeted amounts for the tasks that have been performed is
the
_______ _______ (two words).
5. Schedule variance is the ____ minus the _____ and cost variance is the ____
minus
the _____ (use acronyms).
6. Schedule performance index is ____ / _____ and the cost performance index
is
_____ / ______ (use acronyms).
7. The revised final budget is the ____ plus the _____ (use acronyms).

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 Estimating Earned Value

Consider a project you are familiar with in which the contractor or service
provider
who was performing the work needed to be replaced before the job was completed.
Describe how the value of the contractor’s efforts up to that point was
determined
and how that evaluation compared to an earned value analysis.

[1] Project Management Institute, Inc., A Guide to the Project Management Body of

Knowledge
(PMBOK Guide), 4th ed. (Newtown Square, PA: Project Management Institute, Inc.,
2008), 173.
[2] Project Management Institute, Inc., A Guide to the Project Management Body of
Knowledge
(PMBOK Guide), 4th ed. (Newtown Square, PA: Project Management Institute, Inc.,
2008), 177.

9.3 Exercises
Exercises at the end of the chapter are designed to strengthen your understanding
and
retention of the information recently acquired in the chapter.

SHORT ANSWER QUESTIONS

The questions in this section refer to the project budget shown below.

Figure 9.10Example for Short Answer Questions

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 This project has three completed activities whose durations are indicated by
the blue
bars in row 2. The budgeted cost of work scheduled for each task is shown on
the bar
in row 2. The budgeted cost of work scheduled for each week is shown on row
3.
Notice that the amounts in row 3 add up to the amounts shown on the bars.
Rows 4
and 5 indicate the budgeted cost of work performed and actual cost. Notice
that the
second task started a week late.

1. What is the planned value (PV) at the end of week three?

2. What is the earned value (EV) at the end of week three?
3. What is the actual cost (AC) at the end of week three?
4. What is the cost variance (CV) at the end of week three?
5. What is the schedule variance (SV) at the end of week three?
6. What is the planned value (PV) at the end of week seven?
7. What is the earned value (EV) at the end of week seven?
8. What is the actual cost (AC) at the end of week seven?
9. What is the cost variance (CV) at the end of week seven?
10. What is the schedule variance (SV) at the end of week seven?
11. What is the cost performance index (CPI) at the end of week seven?
12. What is the schedule performance Index at the end of week seven?
13. If the budget at completion (BAC) for this project is $500,000, what is
the Estimate
to Complete (ETC) at the end of week seven if the cost and schedule variances
experienced are typical of the remainder of the activities?
14. Based on your answer to the previous question, what is the estimate at
completion
(EAC) for this project?

ESSAY QUESTIONS
Write several paragraphs to provide more in-depth analysis and consideration
when
answering the following questions.

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1. A project is about a third of the way through its scheduled activities, and
an earned
value management report has been prepared. The summary indicates that it has a
CPI
of 0.9 and an SPI of 0.8. What do these two values tell you about the project?
2. A project is about half done with a CV of $(4,000) due to atypical costs in
the first
half of the project. Its project manager provides an ETC of $50,000. Interpret
this
statement in your own words.
3. Give an example of an analogous estimate and a parametric estimate that are
different from those described in the text.

DISCUSSION
The exercises in this section are designed to promote exchange of information
among
students in the classroom or in an online discussion. The exercises are more
open
ended, which means that what you find might be completely different from what
your
classmates find, and you can all benefit by sharing what you have learned.

1. Describe an experience of your own that involved a parametric estimate.

Describe
the parameter and how it was used. Compare the estimate with the actual cost.
2. As an inexperienced project manager, how do you develop expert knowledge?
Interview someone who would qualify as an expert in estimating costs and ask
them
to describe the process they went through. Ask them for advice on how to
become an
acknowledged expert in estimating and then share what you learn with your
classmates.

10.1 Quality and Statistics

LEARNING OBJECTIVES
1. Define quality.
2. Define and explain statistics terms used in quality control.

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3. Estimate the likelihood of samples falling within one, two, or three
standard
deviations of the mean given a normal distribution caused by random factors.

Definitions of Quality and Grade

Quality is a relative term, which means that something is of high or low quality
compared
to what it is required to be. According to the International Organization for
Standardization
(ISO), quality is “the degree to which a set of inherent characteristics fulfill
requirements.” [1] The requirements of a product or process can be categorized or
given
a grade. The quality is determined by how well something meets the requirements of
its
grade. Consider the following examples.

Quality of Gasoline Grades

Petroleum refiners provide gasoline in several different grades based on the octane
rating
because higher octane ratings are suitable for higher compression engines. Gasoline
must
not be contaminated with dirt or water, and the actual performance of the fuel must
be
close to its octane rating. A shipment of low-grade gasoline graded as 87 octane
that is free
of water or other contaminants would be of high quality, while a shipment of high
grade 93
octane gas that is contaminated with dirt would be of low quality.

Quality of Furniture Packing in John’s Move

John has antique furniture that is in excellent condition that was left to him by
his
grandmother. The pieces are important to John for sentimental reasons and they are
also
valuable. John decides to hire movers (high-grade professionals) to load his
furniture into
the truck using appropriate padding and restraints to prevent dents and scratches
during
the long trip to Atlanta and then to unload the truck in Atlanta. John’s standard
for high
quality is that no observable damage occurs to his large pieces of furniture,
especially the
antiques. If the furniture arrives in his new apartment without a single dent,
scratch, or
other damage, the activity will be of high quality.

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John’s standard for packing his kitchen is lower. His dishes are old and cheap, so
he decides
to trust his inexperienced friends (low-grade amateurs) to help him pack his
kitchen. If a
few of the dishes or glassware are chipped or broken in the process, the savings in
labor
cost will more than make up for the loss, and the dishes can be easily replaced. If
John has a
few chipped dishes and a broken glass or two by the time he is unpacked in Atlanta,
he will
consider the kitchen packing to be of high quality.

For most people, the term quality also implies good value—getting your money’s
worth.
For example, even low-grade products should still work as expected, be safe to use,
and last
a reasonable amount of time.

Statistics Terminology
Determining how well products meet grade requirements is done by taking
measurements
and then interpreting those measurements. Statistics—the mathematical
interpretation of
numerical data—is useful when interpreting large numbers of measurements and is
used
to determine how well the product meets a specification when the same product is
made
repeatedly. Measurements made on samples of the product must be
between control limits
—the upper and lower extremes of allowable variation—and it is up to management to
design a process that will consistently produce products between those limits.

Setting Control Limits in Gasoline Production

A petroleum refinery produces large quantities of fuel in several grades. Samples
of the
fuels are extracted and measured at regular intervals. If a fuel is supposed to
have an 87
octane performance, samples of the fuel should produce test results that are close
to that
value. Many of the samples will have scores that are different from 87. The
differences are
due to random factors that are difficult or expensive to control. Most of the
samples should
be close to the 87 rating and none of them should be too far off. The manufacturer
has

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grades of 85 and 89, so they decide that none of the samples of the 87 octane fuel
should be
less than 86 or higher than 88.

If a process is designed to produce a product of a certain size or other measured

characteristic, it is impossible to control all the small factors that can cause
the product to
differ slightly from the desired measurement. Some of these factors will produce
products
that have measurements that are larger than desired and some will have the opposite
effect. If several random factors are affecting the process, they tend to offset
each other
most of the time, and the most common results are near the middle of the range.
This idea
is called the central limit theorem.

If the range of possible measurement values is divided equally into subdivisions

called bins,
the measurements can be sorted, and the number of measurements that fall into each
bin
can be counted. The result is a frequency distribution that shows how many
measurements
fall into each bin. If the effects that are causing the differences are random and
tend to
offset each other, the frequency distribution is called a normal distribution,
which
resembles the shape of a bell with edges that flare out. The edges of a theoretical
normal
distribution curve get very close to zero but do not reach zero.

Normal Distribution of Gasoline Samples

A refinery’s quality control manager measures many samples of 87 octane gasoline,
sorts
the measurements by their octane rating into bins that are 0.1 octane wide, and
then
counts the number of measurements in each bin. Then she creates a frequency
distribution
chart of the data, as shown in Figure 10.1 "Normal Distribution of Measurements of
Gasoline Samples".

If the measurements of product samples are distributed equally above and below the
center of the distribution as they are in Figure 10.1 "Normal Distribution of
Measurements
of Gasoline Samples", the average of those measurements is also the center value
that is

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called the mean and is represented in formulas by the lowercase Greek letter µ
(pronounced mu). The amount of difference of the measurements from the central
value is
called the sample standard deviation or just the standard deviation. The first step
in
calculating the standard deviation is subtracting each measurement from the central
value
and then squaring that difference. (Recall from your mathematics courses that
squaring a
number is multiplying it by itself and that the result is always positive.) The
next step is to
sum these squared values and divide by the number of values minus one. The last
step is to
take the square root. The result can be thought of as an average difference. (If
you had used
the usual method of taking an average, the positive and negative numbers would have
summed to zero.) Mathematicians represent the standard deviation with the lowercase
Greek letter σ (pronounced sigma). If all the elements of a group are measured, it
is called
the standard deviation of the population and the second step does not use a minus
one.

Figure 10.1 Normal Distribution of Measurements of Gasoline Samples

The chart shows that the most common measurements of octane rating are close to 87
and that the other measurements are distributed equally above and below 87. The
shape of the distribution chart supports the central limit theorem’s assumption
that the
factors that are affecting the octane rating are random and tend to offset each
other,
which is indicated by the symmetric shape. This distribution is a classic example
of a
normal distribution. The quality control manager notices that none of the

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measurements are above 88 or below 86 so they are within control limits and
concludes that the process is working satisfactorily.

Standard Deviation of Gasoline Samples

The refinery’s quality control manager uses the standard deviation function in his
spreadsheet program to find the standard deviation of the sample measurements and
finds
that for his data, the standard deviation is 0.3 octane. She marks the range on the
frequency
distribution chart to show the values that fall within one sigma (standard
deviation) on
either side of the mean. See the figure below.
Figure 10.2

Most of the measurements are within 0.3 octane of 87.

For normal distributions, about 68.3 percent of the measurements fall within one
standard
deviation on either side of the mean. This is a useful rule of thumb for analyzing
some types
of data. If the variation between measurements is caused by random factors that
result in a
normal distribution and someone tells you the mean and the standard deviation, you
know
that a little over two-thirds of the measurements are within a standard deviation
on either
side of the mean. Because of the shape of the curve, the number of measurements
within
two standard deviations is 95.4 percent, and the number of measurements within
three
standard deviations is 99.7 percent. For example, if someone said the average
(mean)

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height for adult men in the United States is 5 feet 10 inches (70 inches) and the
standard
deviation is about 3 inches, you would know that 68 percent of the men in the
United States
are between five feet seven inches (67 inches) and six feet one inch (73 inches) in
height.
You would also know that about 95 percent of the adult men in the United States
were
between five feet four inches and six feet four inches tall, and that almost all of
them (99.7
percent) are between five feet one inches and six feet seven inches tall. These
figures are
referred to as the 68-95-99.7 rule.

Almost All Samples of Gasoline are Within Three

STD
The refinery’s quality control manager marks the ranges included within two and
three
standard deviations, as shown below.

Figure 10.3The 68-95-99.7 Rule

Some products must have less variability than others to meet their purpose. For
example, if
one machine drills a hole and another machine shapes a rod that will slide through
the
hole, it might be very important to be sure that if the smallest hole was ever
matched with
the widest rod, that the rod would still fit. Three standard deviations from the
control
limits might be fine for some products but not for others. In general, if the mean
is six

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standard deviations from both control limits, the likelihood of a part exceeding
the control
limits from random variation is practically zero (2 in 1,000,000,000). Refer
to Figure 10.4
"Meaning of Sigma Levels".
Figure 10.4 Meaning of Sigma Levels

A Step Project Improves Quality of Gasoline

A new refinery process is installed that produces fuels with less variability. The
refinery’s
quality control manager takes a new set of samples and charts a new frequency
distribution diagram, as shown below.
Figure 10.5Smaller Standard Deviation

The refinery’s quality control manager calculates that the new standard deviation
is 0.2
octane. From this, he can use the 68-95-99.7 rule to estimate that 68.3 percent of
the fuel
produced will be between 86.8 and 87.2 and that 99.7 percent will be between 86.4
and

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87.6 octane. A shorthand way of describing this amount of control is to say that it
is a five-
sigma production system, which refers to the five standard deviations between the
mean
and the control limit on each side.

KEY TAKEAWAYS
 Quality is the degree to which a product or service fulfills requirements
and
provides value for its price.
 Statistics is the mathematical interpretation of numerical data, and
several
statistical terms are used in quality control. Control limits are the
boundaries of
acceptable variation.
 If random factors cause variation, they will tend to cancel each other out—
the
central limit theorem. The central point in the distribution is the mean,
which is
represented by the Greek letter mu, µ. If you choose intervals called bins and
count
the number of samples that fall into each interval, the result is a frequency
distribution. If you chart the distribution and the factors that cause
variation are
random, the frequency distribution is a normal distribution, which looks bell
shaped.
 The center of the normal distribution is called the mean, and the average
variation
is calculated in a special way that finds the average of the squares of the
differences
between samples and the mean and then takes the square root. This average
difference is called the standard deviation, which is represented by the Greek
letter
sigma, σ.
 About 68 percent of the samples are within one standard deviation, 95.4
percent
are within two, and 99.7 percent are within three.

EXERCISES
1. According to the ISO, quality is the degree to which a set of inherent
characteristics
fulfill ___________.
2. The upper and lower extremes of acceptable variation from the mean are
called
the __________ limits.

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3. The odds that a sample’s measurement will be within one standard deviation
of
the mean is ____ percent.
4. How is quality related to grade?
5. If the measurements in a frequency distribution chart are grouped near the
mean
in normal distribution, what does that imply about the causes of the
variation?
6. If you have a set of sample data and you had to calculate the standard
deviation,
what are the steps?
7. If a set of sample measurements has a mean of 100, a normal distribution, a
standard deviation of 2, and control limits of 94 and 106, what percentage of
the
samples are expected to be between 94 and 106? Explain your answer.

Using Statistical Measures

Choose two groups of people or items that have a measurable characteristic

that can
be compared, such as the height of adult males and females. Describe the
distribution
of the measurements by stating whether you think the groups have a relatively
small
or large standard deviation and whether the distributions overlap (e.g., some
women
are taller than some men even though the mean height for men is greater than
the
mean height for women). Demonstrate that you know how to use the following
terms
correctly in context:

 Normal distribution
 Standard deviation
 Mean

[1] International Organization for Standardization, Quality Management Systems—

Fundamentals and Vocabulary (Geneva: ISO Press, 2005), in Project Management
Institute,
Inc., A Guide to the Project Management Body of Knowledge (PMBOK Guide), 4th ed.
(Newtown
Square, PA: Project Management Institute, Inc., 2008), 190.

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10.2 Development of Quality as a
Competitive Advantage
LEARNING OBJECTIVES
1. Describe the historical events and forces that led up to today’s emphasis
on quality
as a competitive requirement.
2. Describe quality awards in Japan and the United States.
3. Describe quality programs and standards such as TQM, Six Sigma, and ISO
9000.
4. Describe and calculate the cost of quality.
Quality management is an approach to work that has become increasingly important as
global cooperation and competition have increased. A review of the history of
quality
management explains why it is so important to companies and why clients often
require
projects to document their processes to satisfy quality standards.

Statistical Control Before World War II

Prior to the late 1700s, products such as firearms and clocks were made as
individual
works where the parts were adjusted to each other so they could work together. If a
part
broke, a new one had to be made by hand to fit. In 1790 in France, Honoré Blanc
demonstrated that he could make musket parts so nearly identical that a musket
could be
assembled from bins of parts chosen at random. [1] The practice of making parts to
a high
level of accuracy in their dimensions and finishes made the parts interchangeable.
The use
of interchangeable parts became the founding principle of assembly line
manufacturing to
produce all manner of goods from sewing machines to automobiles. The manufacturers
of
firearms and weapons were often the leaders in improving quality because reliable
and
safe operation of weapons and their rapid repair is a matter of life and death.

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Statistical Control in the United States During World
War II
During World War II, factories were converted from manufacturing consumer goods to
weapons. War plants had to make large numbers of parts as fast as possible while
doing it
safely for the workers and for the service members who used them. Important
improvements inquality control (QC)—the management of production standards through
statistical interpretation of random product measurements, which emphasizes
consistency
and accuracy—were made during this period. A key figure in the history of quality
management who was an important person in the war effort was Walter Shewhart at
Bell
Telephone Laboratories. Shewhart recognized that real processes seldom behaved like
theoretical random distributions and tended to change with time. He separated
causes of
variation into two categories: chance cause andassignable cause. Chance causes
could be
ignored if they did not cause too much variation, and trying to eliminate them
often made
the problem worse, but assignable causes could be fixed. To help distinguish
between
variations caused by random events and trends that indicated assignable causes,
Shewhart
introduced the control chart, which is also known as a type of run chartbecause
data are
collected while the process is running. A control chart has time on the bottom axis
and a
plot of sample measurements. The mean, upper control limit, lower control limit,
and
warning lines that are two sigma from the mean are indicated by horizontal lines.

Control Chart Shows Production Variation of

Gasoline
The refinery quality control manager takes samples each day of the 87 octane
gasoline for
twenty days and charts the data on a control chart, as shown below.

Figure 10.6Control Chart Displaying Variations Due to Chance Causes

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She recognizes that the highest and lowest measurements are not part of a trend and
are
probably due to chance causes. However, the control chart from the next twenty
days, as
shown below, indicates an upward trend that might be due to an assignable cause.
She
alerts the process manager to let him know that there is a problem that needs to be
fixed
before the product exceeds the upper control limit. This might indicate the need to
initiate
a project to fix the problem.

Figure 10.7Control Chart Displaying Variations That Might Be Due to an Assignable

Cause

Deming and Postwar Japan

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 The most influential person in modern quality control was an American who was
a hero in
Japan but virtually unknown in the United States. W. Edwards Deming worked
with
Shewhart at Bell Labs and helped apply Shewhart’s ideas to American
manufacturing
processes during World War II. Following the war, American factories returned
to the
production of consumer goods. Many of the other major manufacturing centers in
the
world had been damaged by bombing during the war and took time to recover.
Without the
safety needs of wartime and with little competition, quality control was not a
high priority
for American companies. [2] Management in the United States focused on
increasing
production to meet demand and lowering costs to increase profits.

After the war, while the United States occupied Japan, Deming was asked by the
U.S.
Department of the Army to assist with the statistics of the 1950 census in
Japan. Kenichi
Koyanagi, the managing director of the Union of Japanese Scientists and
Engineers and a
very influential industrialist, asked Deming to speak to twenty-one top
industrial leaders
on the topic of global strategy for Japanese industry. Deming went beyond
Shewhart’s work
and talked about his philosophy of quality manufacturing and how the
responsibility for
quality begins with management. He explained that a corporate culture devoted
to
producing high-quality products would result in less waste, lower costs,
greater client
loyalty, and greater market share. With Koyanagi’s support, Deming’s ideas
were widely
adopted by these influential leaders.

Deming described his philosophy as a system of profound knowledge, which has

four parts:

1. Appreciation of a system. Understanding how suppliers, producers, and

clients
interact
2. Knowledge of variation. Understanding statistical variation
3. Theory of knowledge. Understanding what can be known and what cannot
4. Knowledge of psychology. Understanding human nature

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 In 1950, the Japanese created the Deming prize in Deming’s honor, which is
awarded to an
individual and a company for major advances in quality improvements. In 1960,
Deming
was awarded the Order of the Sacred Treasure, Second Class by the Prime
Minister on
behalf of Emperor Hirohito.

Quality Management in America

By the 1970s, Japanese companies had a reputation for high quality and were
taking
market share from American companies, but Deming’s teachings were virtually
unknown
in his own country. It was not until 1980 that America became aware of Deming
when his
work was described in an NBC documentary titled If Japan Can, Why Can’t
We? [3] By then,
Deming was eighty years old and the producer of the show originally assumed he
was
dead. [4]

In 1982, Deming’s book was published and later retitled Out of Crisis, in

1986. [5] It was
aimed at explaining his system to American manufacturers and the American
public. In the
book, Deming described fourteen principles of management to guide the
implementation of
his philosophy. Some of them were challenges to Western managers and very
different
from the thinking that was prevalent at the time. In brief, they are as
follows:

1. Create constancy of purpose toward improvement of product and service.

2. Adopt a new philosophy. We are in a new economic age. Western
management must
awaken to the challenge, learn their responsibilities, and take on leadership
for a change.
3. Cease dependence on inspection to achieve quality. Eliminate the need
for
inspection on a mass basis by building quality into the product in the first
place.
4. End the practice of awarding business on the basis of price tag.
Instead, minimize
cost. Move toward a single supplier for any one item, on a long-term
relationship of loyalty
and trust.

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5. Improve constantly and forever the system of production and
service to improve
quality and productivity and thus constantly decrease costs.
6. Institute training on the job.
7. Institute leadership. The aim of supervision should be to help
people and machines
and gadgets to do a better job. Supervision of management is in need of
overhaul, as well as
supervision of production workers.
8. Drive out fear, so that everyone may work effectively for the
company.
9. Break down barriers between departments.
10. Eliminate slogans, exhortations, and targets for the workforce
asking for zero
defects and new levels of productivity.
11. Eliminate work standards (quotas) on the factory floor.
Substitute leadership.
12. Remove barriers that rob the hourly worker of his right to pride
of workmanship.
13. Institute a vigorous program of education and self-improvement.
14. Put everybody in the company to work to accomplish the
transformation. The
transformation is everybody’s job.

Between 1979 and 1982, Ford Motor Company lost $3 billion, and they were
looking for
solutions to their problems. They chose to apply Deming’s approach to develop
the new
Taurus-Sable model and by 1986 had become the most profitable American auto
company. [6]
Ford adopted a Japanese approach to quality known in America
astotal quality management (TQM). TQM in Japan has four major components:

1. Kaizen. Improvement must involve all members of a company. [7]

2. Atarimae hinshitsu. Make things work the way they are supposed to
work. [8]
3. Kansei. Learn from the way a user applies the product to make
improvements. [9]
4. Miryokuteki hinshitsu. Things should have an aesthetic quality
and be pleasing to
use. [10]

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 According to Peter B. Petersen, [11] TQM differs from the Deming approach in
four
fundamental ways:
1. The Deming approach represents one philosophy that is used in its
entirety or not at
all. In contrast, TQM can be tailored to a particular environment.
2. Both agree that a long-term commitment is required by top management.
However,
Deming would drop clients if they started to wane, while TQM consultants were
less
demanding.
3. Deming insists on constancy of purpose, while TQM adapts to the
situation, which
results in lack of constancy.
4. Deming requires adoption of his principles of profound knowledge,
while TQM lacks
this unified philosophy.

Many poorly qualified consulting firms provided training in TQM to American

companies.
The approach worked in some cases but not in others where it was applied
superficially,
and the movement’s credibility was diminished.

Another approach to quality management in the United States was formulated at

Motorola
in 1986 and was named Six Sigma (6σ). The Six Sigma practices were based on
Deming’s
work, TQM, and others and had similarities regarding continuous efforts at
improvement
involving everyone at the company. It emphasized a clear focus on achieving
quantifiable
financial returns from any Six Sigma project. To determine the financial
return on a quality
initiative, thecost of quality (COQ) must be determined. The cost of quality
has two parts:
the cost of prevention and the cost of failure (or nonconformance). The cost
of quality is the
difference between the additional money spent on prevention and the
corresponding
reduction in the cost of failure.

 Cost of prevention
a. Cost of conformance. Cost to improve quality

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 b. Cost of appraisal. Cost to measure and evaluate quality

 Cost of failure
a. Internal costs. Repairing bad parts before shipment or retooling a
manufacturing
line to reduce failures
b. External costs. Managing returns, lawsuits, product recalls

Six Sigma identified individuals as experts in quality and awarded titles like
Champion and
Master Black Belt. The name Six Sigma refers to a process that has six
standard deviations
from the mean to either control limit that would ensure virtually zero
defects. (In practice,
the Six Sigma approach allows for a 1.5 sigma drift, so it is really a 4.5
sigma standard that
allows approximately 3.4 defects per million products.) This approach was
adopted by Jack
Welch at General Electric with great success. By the late 1990s, about two-
thirds of the top
five hundred companies in the United States had begun Six Sigma projects,
including Ford,
which had allowed its quality programs to slip. To provide encouragement and a
consistent
standard, the U.S. government created
the Malcolm Baldrige National Quality Award in
1987 to encourage companies to improve quality; the award was named for
Malcolm
Baldrige who was the U.S. secretary of commerce from 1981 to 1987. [12] The
criteria used
to determine award winners are as follows:

1. Leadership of senior executives

2. Strategic planning
3. Customer and market focus
4. Measurement, analysis, and knowledge management
5. Workforce focus
6. Process management
7. Results

Trade and International Standards

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 Trade between countries increased as countries recovered from WWII and began
producing consumer goods. In 1948, the General Agreement on Tariffs and Trade
(GATT)
established the rules for international trade in the postwar world. Through
years of
negotiations based on GATT, the World Trade Organization (WTO) was created in
1995.
The WTO is a negotiating forum where governments can discuss ways to help trade
flow as
freely as possible. [13]
Increases in trade forced companies to improve the quality of their products to
compete for
clients and to exchange parts reliably between companies that used parts
suppliers. To
assist in developing standards for quality that would be the same between
countries, an
organization of 158 national standards groups formed
theInternational Organization for Standardization (ISO), which is headquartered
in
Switzerland. For example, a company might require a parts supplier to meet
certain ISO
standards if it wants to bid on contracts. There are thousands of ISO
standards, and they
are grouped by their numbers. The ISO 9000 group of standards relate to
quality:
 ISO 9000. Fundamentals and vocabulary for this group of quality
standards.
 ISO 9001. Standards for evaluating the quality management processes
in an
organization. It has five parts:
a. Overall requirements for the quality management system and
documentation
b. Management responsibility, focus, policy, planning and
objectives
a. Resource management and allocation
b. Product realization and process management
c. Measurement, monitoring, analysis, and improvement

 ISO 9004. Ways to extend benefits of ISO 9001 to employees, owners,

suppliers,
partners, and society in general. It is a guide for top management for overall
quality
improvement.
 ISO 9011. Guidance for auditing a quality system.

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 Recommended steps for implementing a quality management system (QMS) are as
follows:

1. Fully engage top management.

2. Identify key processes and the interactions needed to meet quality
objectives.
3. Implement and manage the QMS and its processes.
4. Build your ISO 9001-based QMS.
5. Implement the system, train company staff, and verify effective
operation of your
processes.
6. Manage your QMS—focus on client satisfaction, strive for continual
improvement.
7. If necessary, seek third-party certification and registration of the
QMS, or
alternatively, issue a self-declaration of conformity. [14]

KEY TAKEAWAYS
 The need for production of safe, reliable weapons that could be mass
produced led
to use of methods to assure that parts were manufactured within controlled
limits. An
early example is the interchangeable musket parts produced in France in
1790 and,
later, the quality control methods introduced by Shewhart in the United
States during
World War II.
 Following World War II, Japanese companies followed advice from Deming
and
others to make quality a top priority for management. Higher-quality
products gave
Japan a competitive advantage with U.S. consumers that forced U.S. firms
to respond
with similar quality programs.
 The Deming award is given by Japan to companies doing business in
Japan for high-
quality standards. Similarly, the Baldrige National Quality Award is given
to U.S.
companies and individuals for their contribution to quality.
 Total quality management is a flexible program that is adapted from
Japanese
practices that emphasize kaizen, participation by all; atarimaie
hinshitsu, making
things work the way they should; kansei, learning from the way the client
uses the
product to make improvements; andmiryokuteki hinshitsu, giving products an

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 aesthetic quality to make them pleasing to use. Six Sigma identifies
specialists within
the organization and assigns titles like Master Black Belt. Each quality
project must
evaluate the cost of quality to gain approval.
 The International Standards Institute devises guidelines for establishing
practices.
The ISO 9000 group are guidelines for establishing practices that are likely
to create
quality products.
 The cost of quality has two parts: the cost of prevention and the cost of
failure. The
cost of prevention includes costs to establish quality practices and the costs
to verify
them. The cost of failure includes internal costs before the product is sold,
such as
waste and fixing products, while external costs include those that occur after
the
product is sold, such as returns and lawsuits.

EXERCISES
1. Quality control is very important in the manufacturing of _______ because
the safe
and reliable operation of those products is a matter of life and death.
2. The prize for quality in Japan is named after _________ (last name).
3. The quality program created at Motorola and adopted by Jack Welch at
General
Electric is __________.
4. The cost of quality considers the cost of prevention and the cost of
___________.
5. What is the purpose of having an international quality standard like ISO?
6. Describe benchmarking.
7. If a quality program costs $10,000 to plan and $50,000 to administer, what
is the
COQ if the program reduces waste by $30,000 and returns of bad products by
$40,000? Explain how you calculated the answer.

Balancing Cost of Prevention to Cost of Failure

Describe a project activity where the cost of prevention might be much higher
than
the cost of failure and unlikely enough to accept the risk of its failure
rather than pay

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 the cost of prevention. Similarly, describe a project activity where the cost
of
prevention is smaller than the cost of failure.

[1] Ken Alder, “Innovation and Amnesia: Engineering Rationality and the Fate of
Interchangeable Parts Manufacturing in France,” Technology and Culture 38, no 2
(April 1997):
273–311.
[2] John Dowd, “How the Japanese Learned to Compete,” Asia Times, October 27,
2006,http://www.atimes.com/atimes/Japan/HJ27Dh01.html (accessed August 11, 2009).
[3] John Dowd, “How the Japanese Learned to Compete,” Asia Times, October 27,
2006,http://www.atimes.com/atimes/Japan/HJ27Dh01.html (accessed August 11, 2009).
[4] Thomas J. Boardman, “The Statistician Who Changed the World: W. Edwards Deming,
1900–
1993,” The American Statistician 48 (August 1994): 179–87.
[5] W. Edwards Deming, Out of the Crisis (Boston: MIT Press, 1982).
[6] Society of Manufacturing Engineers, “Ford Embraces Six-Sigma Quality Goals,”
June 13,
2001,http://www.sme.org/cgi-bin/get-press.pl?&&20012513&ND&&SME& (accessed August
13, 2009).
[7] Encyclopedia Britannica, s.v. “Total Quality
Control,”http://www.britannica.com/EBchecked/topic/1387304/Total-Quality-Control (a
ccesse
d August 13, 2009).
[8] NationMaster.com, “Miryokuteki Hinshitsu,”
2005,http://www.statemaster.com/encyclopedia/Miryokuteki-Hinshitsu (accessed August
14,
2009).
[9] WASEDA University, “Kansei
Quality,” http://www.tqm.mgmt.waseda.ac.jp/study/kansei_e.html(accessed June 20,
2010).
[10] NationMaster.com, “Miryokuteki Hinshitsu,”
2005,http://www.statemaster.com/encyclopedia/Miryokuteki-Hinshitsu (accessed August
14,
2009).
[11] Peter B. Petersen, “Total Quality Management and the Deming Approach to
Quality
Management,”Journal of Management History 5, no. 8 (1999): 468–88.

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[12] National Institute of Standards and Technology, “Frequently Asked Questions
about the
Malcolm Baldrige National Quality Award,” November 25,
2008,http://www.nist.gov/public_affairs/factsheet/baldfaqs.htm (accessed August 14,
2009).
[13] World Trade Organization, “Understanding the WTO:
Basics,”http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm (accessed
August
14, 2009).
[14] International Organization for Standardization, Quality Management Systems—
Fundamentals and Vocabulary (Geneva: ISO Press, 2005), in Project Management
Institute,
Inc., A Guide to the Project Management Body of Knowledge (PMBOK Guide), 4th ed.
(Newtown
Square, PA: Project Management Institute, Inc., 2008).

10.3 Relevance of Quality Programs to

Project Quality
LEARNING OBJECTIVES
1. Identify the similarities between process quality management and project
quality
management.
2. Identify the differences between process quality management and project
quality
management.

Project quality refers to two distinct aspects of the project. Project quality can
refer to the
quality of the product or service delivered by the project. Does the end product
meet client
specifications? For example, does a software development project develop a program
that
performs to the client’s requirements? A software program that performs the basic
work
functions but does not integrate with existing software would not be considered a
quality
product, as long as the client specified that the software must interface with
existing
software.

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Project quality can also refer to managing the project efficiently and effectively.
Almost any
client specification can be met if the project manager has unlimited time and
resources.
Recall that high quality means meeting the requirements for a particular grade
while
providing value. Meeting project deliverables within the time and resource
constraints is
also a measure of project quality. Developing a project execution plan that matches
the
complexity level of the project is the most critical aspect in developing a project
plan that
meets project specifications within the time frame and at the lowest costs. These
two
aspects of project quality have similarities and differences to quality as applied
to parent
organizations.

Similarities

All successful quality programs have (1) a requirement for commitment to quality by
all the
employees and their partners and (2) an emphasis on error prevention and client
satisfaction. To comply with TQM, Six Sigma, ISO, or other quality standards
required by
the client or by the project management firm, the project manager must engage in
quality
programs and provide documents that specifically comply with the quality standards
in
use. For example, a project is typically required to follow the parent
organization’s work
processes related to procurement and document management. Any project processes
that
interface with the organization’s quality processes will be required to meet the
quality
standards of the organization.
If a large project involves repetitive processes such as welding or pouring
concrete,
statistical processes control methods can be used to maintain the quality of the
product.
These processes control methods are similar to those used by process managers in
the
manufacturing environment. The intent is for the work of the project to meet design
specifications. The welding tools and equipment must be sufficient to perform the
welds
established in the welding specifications, and the welds must be tested, usually by
an
independent tester, to assure the end product meets the design specifications. The
civil

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engineers design a concrete pour to meet certain criteria that will support a
structure. The
criteria, detailed in the design specifications, provide the parameters that the
construction
crew must meet when pouring the concrete. On large projects, which sometimes have
thousands of welds and hundreds of yards of concrete to pour, the use of quality
control
tools and methods are critical to meeting design specifications.

Differences

Because projects are temporary, spotting trends in samples produced by repetitive

processes is not as important as considering quality in the planning of the
project. Instead,
the project manager must be able to provide documentation that demonstrates that
the
correct processes are in place to prevent quality failures.

The cost of quality (COQ) must be considered in the scope document and the project
budget. If the group or company that is providing the project management is
separate from
the client, the project budget will bear the cost of prevention while the client
will reap the
rewards of avoiding the costs of failure. If senior management does not recognize
the
benefit to the organization of reducing cost of failure by spending more on
prevention
during the project, the project manager can be placed in the position of producing
a
product or service that he or she knows could be of higher quality.

If the cost of quality is not specifically considered and approved by senior

management in
the scope of the project, quality might be sacrificed during the project to meet
budget goals.

Cost of Quality in an Energy Management System

At a midwestern university, a new building was being built, but it was over budget.
To
reduce the cost of the energy management system and avoid a late penalty, the
project
manager installed a cheaper energy management system. The less expensive system
could
not reduce power to the air circulation fans during peak electrical price periods,
and it was
not compatible with other campus systems. Five years after the building was built,
when a

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central control unit was installed to coordinate building energy consumption, the
incompatible system was replaced because it could not communicate with the central
campus energy control system or save as much in electrical costs. The university
did not
take the time to specify the quality of the building control system in the scope
statement
and was not aware of the implication of the substitution at the time it was made.
As a
result, the cost of quality was lower in the prevention category but much higher in
the cost
of failure category. Because the parties acted in their own interests instead of
the interest
of the total university and quality was not a team effort, waste occurred and total
cost
increased.

Some separation of responsibility for quality is necessary. For example, if a

project is
undertaken to build a facility that makes something, it is important to distinguish
between
the quality of the work done by the project team and the quality of the items
produced after
the project is over. The client provides specifications for the facility that
should result in
production of quality products. It is the client’s responsibility to provide
appropriate
project requirements that will result in a facility that can produce quality
products. It is the
project manager’s responsibility to meet the project requirements. The project
manager
must focus on meeting requirements for project activities, but as part of the
quality team,
opportunities to improve the quality of the final product should be discussed with
the
client. If the final products fail to meet quality standards, someone will be
blamed for the
failure. It could be the project manager, even if he or she met all the
requirements of the
project specified by the client.

Cost of Prevention in Safety Training

An electronic parts manufacturer chooses to expand operations and needs to hire and
train
fifty employees. It uses its own human resources department to handle the selection
and
hiring of the employees, but it contracts with a nearby technical college to
provide some of
the training. The technical college is responsible for designing and delivering
training on
the topic of plant safety practices. The objective of the training project is to
reduce the

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number of workplace accidents, but that is not the characteristic by which the
quality of the
training program is determined because the rate of accidents for employees who go
through the training will not be known until after they have been employed for
months or
years. The criteria for determining the quality of the training must be something
that can
be controlled and measured by the project manager during the project.

Because projects are time sensitive, meeting activity finish dates is a common
characteristic of quality work on a project that is not typical of a requirement of
a process
manager.

Timely Delivery Part of Quality

At a remote mining site in South America, the gasoline and diesel fuel must be
brought in
by truck over poorly maintained roads to run the trucks and heavy equipment used to
set
up an ore processing facility. The vendor for supplying fuel is required to provide
fuel in
the right grades for the various vehicles, in the appropriate quantities, and in a
timely
manner. If fuel of the right type and grade, with acceptable levels of impurities,
is delivered
a week after the vehicles have run out of fuel, the work on the fuel-delivery
activity is of
low quality.

KEY TAKEAWAYS
 Both project and process quality management require commitment from all
employees, including top management. They are both client oriented and
prevention
oriented.
 Projects are temporary and allow fewer opportunities to improve repetitive
processes. Cost of prevention is often part of the project budget, but the cost
of
failure usually happens after the project is completed. This separation of
costs and
benefits can lead to taking short-term savings on the project at the expense of
higher
cost of failure after the project is complete.

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 EXERCISES
1. How is quality control of a project different from quality control of a
manufacturing
process?

Cost of Failure after the Project

Consider a project you have been involved in, in which the cost of prevention
would
be part of the project budget but the cost of failure would be incurred after
the
project was completed. Describe why you think top management would have to be
involved to make the best decision for the company.

10.4 Planning and Controlling Project

Quality
LEARNING OBJECTIVES
1. Define statistical measurement terminology.
2. Identify sources of information for the planning process.
3. Identify and describe the techniques for controlling project quality.
4. Describe the results of planning and controlling quality.

High quality is achieved by planning for it rather than by reacting to problems

after they
are identified. Standards are chosen and processes are put in place to achieve
those
standards.

Measurement Terminology

During the execution phase of the project, services and products are sampled and
measured to determine if the quality is within control limits for the requirements
and to
analyze causes for variations. This evaluation is often done by a separate quality
control

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group, and knowledge of a few process measurement terms is necessary to understand
their reports. Several of these terms are similar, and it is valuable to know the
distinction
between them.

The quality plan specifies the control limits of the product or process; the size
of the range
between those limits is the tolerance. Tolerances are often written as the mean
value, plus
or minus the tolerance. The plus and minus signs are written together, ±.

Tolerance in Gasoline Production

The petroleum refinery chose to set its control limits for 87 octane gasoline at 86
and 88
octane. The tolerance is 87 ± 1.

Tools are selected that can measure the samples closely enough to determine if the
measurements are within control limits and if they are showing a trend. Each
measurement
tool has its own tolerances. For example, if a machine is making rods whose
diameters
should be 10 mm ± 0.01 mm, you need a measuring device that can accommodate a rod
that is 10 mm wide but can measure that width to a much smaller tolerance than 0.01
mm,
such as 0.001 mm.

The choice of tolerance directly affects the cost of quality (COQ). In general, it
costs more to
produce and measure products that have small tolerances. The costs associated with
making products with small tolerances for variation can be very high and not
proportional
to the gains. For example, it might double the manufacturing cost to improve a
process
from a 4 σ to a 5 σ (lower tolerances from 25 percent of control limits to 20
percent), which
might only reduce the number of parts that are out of control from 4 per 100,000 to
6 per
10 million (see Figure 10.4 "Meaning of Sigma Levels"). The cost of failure of only
4 parts
per 100,000 might be much less than the cost of prevention.

Defining and Meeting Client Expectations

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Clients provide specifications for the project that must be met for the project to
be
successful. Meeting project specifications is one definition of a project success.
Clients often
have expectations that are more difficult to capture in a written specification.
For example,
one client will want to be invited to every meeting of the project and will then
select the
ones that seem most relevant. Another client will want to only be invited to
project
meetings that need client input. Inviting this client to every meeting will cause
unnecessary
frustration. Listening to the client and developing an understanding of the
expectations
that are not easily captured in specifications is important to meeting the client’s
expectations.

Project surveys that capture how the client perceives the project performance
provide the
project team with data that is useful in meeting client expectation. If the results
of the
surveys indicate that the client is not pleased with some aspect of the project,
the project
team has the opportunity to explore the reasons for this perception with the client
and
develop recovery plans. The survey can also help define what is going well and what
needs
improved.

Sources of Planning Information

Planning for quality is part of the initial planning process. The early scope,
budget, and
schedule estimates are used to identify processes, services, or products where the
expected
grade and quality should be specified. Risk analysis is used to determine which of
the risks
the project faces could affect quality.

Techniques

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Several different tools and techniques are available for planning and controlling
the quality
of a project. The extent to which these tools are used is determined by the project
complexity and the quality management program in use by the client.

Quality Management Methodology

The quality management methodology required by the client is used. The project
manager
must provide the documentation the client needs to prove compliance with their
methodology. There are several different quality management methodologies, but they
usually have characteristics that are similar to the ones described previously in
the text.

Flowcharting

Many processes are more complicated than a simple sequence of related events that
include several different paths. A flowchart uses standard symbols to diagram a
process
that has branches or loops. Diamonds indicate decisions, and arrows indicate the
direction
of the flow of the process, as shown in Figure 10.8 "Flowchart of a Quality Control
Process".

Figure 10.8 Flowchart of a Quality Control Process

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The process used to plan and assess quality can be described using flowcharts. They
are
useful for communicating processes that have logical branches that can be
determined by
simple yes or no questions. Flowcharting is also useful for discovering
misunderstanding in
project roles and responsibilities and communicating responsibility for work
processes.

Benchmarking

When products like shoes were made by hand, artisans would seek some degree of
standardization by marking standard lengths for different parts of the product on
their
workbench. In modern management practice, if a particular method or product is a
standard of quality, comparing your organization’s quality plan to it is
called benchmarking. If a product or service is similar to something that is done
in another
industry or by a competitor, the project planners can look at the best practices
that are
used by others and use them as a comparison.

Cost-to-Benefit Analysis

Because the cost of prevention is more often part of the project budget, the case
must be
made for increasing the project budget to raise quality. Some quality management
programs, like Six Sigma, require that expenditures for quality are justified using
a cost-to-
benefit analysis that is similar to calculating the cost of quality, except that it
is a ratio of
cost of increasing quality to the resulting benefit. A cost-benefit analysis in
some quality
programs can take into account nonfinancial factors such as client loyalty and
improvements to corporate image and the cost-to-benefit analysis takes the form of
a
written analysis rather than a simple numeric ratio. It is similar to determining
the cost of
quality (COQ).

Design of Experiments

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Measuring for quality of manufactured products or use of repetitive processes
requires
taking samples. Specialists in quality control design a test regimen that complies
with
statistical requirements to be sure that enough samples are taken to be reasonably
confident that the analysis is reliable. In project management, the testing
experiments are
designed as part of the planning phase and then used to collect data during the
execution
phase.

Control Charts

If some of the functions of a project are repetitive, statistical process controls

can be used
to identify trends and keep the processes within control limits. Part of the
planning for
controlling the quality of repetitive processes is to determine what the control
limits are
and how the process will be sampled.

Cause and Effect Diagrams

When control charts indicate an assignable cause for a variation, it is not always
easy to
identify the cause of a problem. Discussions that are intended to discover the
cause can be
facilitated using a cause-and-effect or fishbone diagram where participants are
encouraged
to identify possible causes of a defect.

Diagramming Quality Problems

For example, a small manufacturing firm tries to identify the assignable causes to
variations in its manufacturing line. They assemble a team that identifies six
possibilities,
as shown in the fishbone diagram below.

Figure 10.9Cause and Effect Diagram

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Each branch of the diagram can be expanded to break down a category into more
specific items.

An engineer and the electrician work on one of the branches to consider possible
causes of
power fluctuation and add detail to their part of the fishbone diagram, as shown
below.

Figure 10.10Possible Causes of Power Fluctuation

Check Sheets, Histograms, and Pareto Charts

When several quality problems need to be solved, a project manager must choose
which
ones to address first. One way to prioritize quality problems is to determine which
ones
occur most frequently. This data can be collected using a check sheet, which is a
basic form

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on which the user can make a check in the appropriate box each time a problem
occurs or
by automating the data collection process using the appropriate technology. Once
the data
are collected, they can be analyzed by creating a type of frequency distribution
chart called
a histogram. A true histogram is a column chart where the width of the columns fill
the
available space on the horizontal axis and are proportional to the category values
displayed
on the x axis, while the height of the columns is proportional to the frequency of
occurrences. Most histograms use one width of column to represent a category, while
the
vertical axis represents the frequency of occurrence.

Charting Electrical Problems

The engineer and electrician place a recording meter on the electrical supply to
the
manufacturing area and instruct the building automation system to keep a log of
voltage
coming into the plant from the local utility and when it starts and stops large
electrical fan
motors. They create a check sheet to track the number of times that power dips or
spikes
due to lighting strikes or electric space heater malfunctions. They collect the
data, count the
number of occurrences in each category, and then chart the number of occurrences in
a
histogram, as shown below.

Figure 10.11Histogram Showing Frequency of Power Problems by Likely Cause

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A variation on the histogram is a frequency distribution chart invented by
economist
Vilfredo Pareto known as a Pareto chart, in which the columns are arranged in
decreasing
order with the most common on the left and a line added that shows the cumulative
total.
The combination of columns and a line allows the user to tell at a glance which
problems
are most frequent and what fraction of the total they represent.

Using Pareto Chart to Analyze Voltage Problem

The engineer creates a Pareto chart by sorting the data and adds a line to show
total
problems, as shown below. He concludes that about half of the electrical voltage
problems
are caused when one of the large electrical fan motors on the same circuit as the
manufacturing line is shut down to conserve electricity by the energy management
system
and then restarted.

Figure 10.12Pareto Chart with Problems in Decreasing Order and a Line Showing a
Cumulative Total

Planning and Control Results

The quality plan is produced during the initiation phase. The methods, procedures,
and
logic are described to demonstrate a commitment to a project of high quality. The
plan

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identifies the products or services that will be measured and how they will be
measured
and compared to benchmarks. A flowchart demonstrates the logic and pathways to
improve the plan.
During the execution phase, data are collected by measuring samples according to
the
design specified in the plan. The data are charted and analyzed. If variations are
due to
assignable causes, change requests are created.

KEY TAKEAWAYS
 Statistical control terms that are commonly used are tolerance (the range
between
control limits), flowchart (a diagram showing decision branches and loops),
benchmarking (comparison to best practices), fishbone diagram (shows possible
causes of quality problems), check sheet (form used to record frequency of
problem
occurrences), histogram (column chart that shows frequency of problems), and
Pareto
chart (histogram sorted by frequency from highest to smallest with a line that
shows
total cumulative problems).
 The quality planning process uses initial scope, budget, and schedule
estimates to
identify areas that need quality management.
 Control of quality in repetitive processes use statistical control methods
that
involve designing testing while considering the cost of quality, taking
measurements,
and then analyzing the data using run charts that show control limits and
trends.
Methodologies are compared to the best practices by competitors, which is
called
benchmarking. Errors are documented using check sheets and analyzed using
fishbone
diagrams, histograms, or Pareto charts.
 The products of planning and controlling quality are a quality management
plan,
data, analysis documents, and proposals for improvement

EXERCISES
1. The range from the mean to either control limit is the __________.

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2. A diagram that shows branches and loops based on decisions is a ____ _____.
(two
words)
3. The best practices in an industry to which a company can compare its
practices are
called ___________.
4. What is the difference between a histogram and a Pareto chart?

Quality Management Plan

Consider a project in which you have been involved where there was a quality
management plan or where such a plan was missing. Describe the effect of
having or
not having such a plan.

10.5 Assuring Quality
LEARNING OBJECTIVE
1. Describe the purpose and methods of quality assurance.

The purpose of quality assurance is to create confidence that the quality plan and
controls
are working properly. To assure quality, time must be allocated to review the
original
quality plan and compare that plan to how quality is being created during the
execution of
the project.

Process Analysis

The flowcharts of quality processes are compared to the processes followed during
actual
operations. If the plan was not followed, the process is analyzed and corrective
action
taken. The corrective action could be to educate the people involved on how to
follow the
quality plan or to revise the plan.

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The experiments that sample products and processes and collect data are examined to
see
if they are following statistically valid sampling techniques and that the
measurement
methods have small enough tolerances to detect variation within control limits.

Because projects are temporary, there are fewer opportunities to learn and improve
within
one project if it has a short duration, but even in short projects, the quality
manager should
have a way to learn from experience and change the process for the next project of
a
similar complexity profile.

Analyzing Quality Processes in Safety Training

The technical college responsible for training employees in safe plant practices
evaluates
its instructor selection process at the end of the training to see if it had the
best criteria for
selection. For example, it required the instructors to have Masters degrees in
manufacturing to qualify as college instructors. The college used an exit survey of
the
students to ask what they thought would improve the instruction of future classes
on this
topic. Some students felt that it would be more important to require that the
instructors
have more years of training experience, while others recommended that the college
seek
certification as a training center by the Occupational Safety and Health
Administration
(OSHA). [1] The college considered these suggestions and decided to retain its
requirement
of a Masters degree but add a requirement that the instructor be certified by OSHA
in plant
safety.

Quality Audit
For additional confidence and assurance, an outside group can come in and review
the
quality procedures and accuracy of the data. This process is similar to a financial
audit and
is called aquality audit. The purpose of a quality audit is to compare the stated
quality goals
of the project against the actual practice and procedures that are used. It is not
a
certification of the quality of the products themselves.

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 KEY TAKEAWAY
 The purpose of quality assurance is to build confidence in the client that
quality
standards and procedures are being followed. This is done by an internal
review of the
plan, testing, and revisions policies or by an audit of the same items
performed by an
external group or agency.

EXERCISES
1. How is a quality audit different from a quality plan?

Customer Confidence

Consider a product that has suffered from a failure in its quality. Describe
how the
company handled the problem and its effect on your personal perception of the
company and your confidence in buying its products.

[1] Occupational Safety and Health Administration, OSHA Training Institute

Education Center
Fact Sheet, July 3,
2007, http://www.osha.gov/fso/ote/training/edcenters/fact_sheet.html (accessed
August 7,
2009).

10.6 Exercises
Exercises at the end of the chapter are designed to strengthen your understanding
and
retention of the information recently acquired in the chapter.

ESSAY QUESTIONS
Write several paragraphs to provide more in-depth analysis and consideration
when answering the following questions.

1. Describe the difference between chance cause and assignable cause. How do
these terms relate to Deming’s system of profound knowledge?

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2. According to the text, why did the quality of manufactured goods decline in
the
United States after World War II, and how did Japan take advantage of that
situation?
3. Describe the four Japanese terms used in TQM and give an example of how
they
might apply to a particular product.

DISCUSSION
The exercises in this section are designed to promote exchange of information
among
students in the classroom or in an online discussion. The exercises are more
open
ended, which means that what you find might be completely different from what
your
classmates find, and you can all benefit by sharing what you have learned.

1. The auto industry has been a highly visible battleground for international
competition in which quality and the public’s perception of a company’s
quality have
played an important role. Deming stresses that management is 85 percent of the
problem and the solution to a company’s quality. What are specific examples
with
which you are familiar from the news or personal experience that demonstrate
management leadership (or lack of leadership) toward improving quality.
2. Consider how the four Japanese concepts of quality included in TQM are
applied in
your educational institution. Based on your experience with the management of
your
school, does the management use the principles of kaizen, atarimae
hinshitsu, kansei,
and miryokuteki hinshitsu? Provide an example (or counter example) of each.

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 Chapter 11
Managing Project Risk

Project managers must be prepared to deal with adversity. Planning for events that
that
can delay a project, decrease its quality, or increase its budget is a necessary
part of project
planning.

11.1 Defining Risk
LEARNING OBJECTIVES
1. Define project risk.
2. Define the difference between known and unknown risks.
3. Describe the difference between the business risk of the organization and
project
risk.

Risk is the possibility of loss or injury. [1] Project risk is an uncertain event

or condition that,
if it occurs, has an effect on at least one project
objective. [2] Risk management focuses on

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 identifying and assessing the risks to the project and managing those risks to
minimize the
impact on the project. There are no risk-free projects because there is an
infinite number of
events that can have a negative effect on the project. Risk management is not
about
eliminating risk but about identifying, assessing, and managing risk.

Tzvi Raz, Aaron Shenhar, and Dov Dvir [3] studied the risk management practices
on one
hundred projects in a variety of industries. The results of this study
suggested the following
about risk management practices:

 Risk management is not widely used.

 The projects that were most likely to have a risk management plan were
those that
were perceived to be high risk.
 When risk management practices were applied to projects, they appeared
to be
positively related to the success of the project.
 The risk management approach influenced the meeting of project
schedules and
cost goals but exerted less influence on project product quality.
 Good risk management increases the likelihood of a successful project.
Risk deals with the uncertainty of events that could affect the project. Some
potential
negative project events have a high likelihood of occurring on specific
projects. Examples
are as follows:
 Safety risks are common on construction projects.
 Changes in the value of local currency during a project affect
purchasing power and
budgets on projects with large international components.
 Projects that depend on good weather, such as road construction or
coastal projects,
face risk of delays due to exceptionally wet or windy weather.
These are examples of known risks. Known risks are events that have been
identified and
analyzed for which advanced planning is possible. Other risks are unknown or
unforeseen.

Terrorist Attack
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On September 11, 2001, project team members were flying from various locations to a
project review meeting in South Carolina when all flights were cancelled because of
the
attacks on the World Trade Center. Members of the leadership team could not make
the
meeting or return to their home base, and progress on the project, like many
projects that
day, was delayed.

Sudden Family Death

Just before a project meeting in Texas, the engineering lead received word that his
father
had died in the middle of the night. The team delayed making decisions on some
critical
engineering events without the knowledge and judgment of the engineering manager.

Whole Crew Fails Drug Test

On a project in Texas, the entire twelve-member masonry crew failed the drug
screening
test even though they had been told that drug screening was required on the
project.

These events were unforeseen by the project team, and in all three cases the
projects
experienced schedule delays and additional costs.
Project risks are separate from the organizational risks that are associated with
the
business purpose of the project.

A project was chartered to design and construct a copper mine at a cost not to
exceed $1.2
billion. If a project is completed on time, within budget, and meets all quality
specifications,
the project is successful. If the price of copper drops below the profit threshold
for the
company, the organizational goals of the project may not be achieved. The price of
copper
is an organizational or business risk. The copper mining company authorized the
project
based on assumptions about the future price of copper. The price of copper is not a
project
risk on this project.

KEY TAKEAWAYS
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 Project risk is the possible outcome that planned events on the project
will not
occur as planned or that unplanned events will occur that will have a negative
impact
of the project.
 Known risks can be identified before they occur, while unknown risks are
unforeseen.
 Organizational risks are associated with the business purpose of the
project and
assumed by the client when deciding to do the project.

EXERCISES
1. According to PMI, project risk is a(n) ___________ event or condition that,
if it
occurs, has an effect on at least one project objective.
2. A risk such as the future market price of a commodity is an example of a(n)
_________ risk.
3. Define risk in your own words.
4. Give an example of a known risk and an unknown risk that are different from
those
in the text.
5. Describe the difference between organizational risk and project risk in
your own
words and give an example of each that is not used in the text.

Planning for Known and Unknown Risks

Consider a trip that you might be planning. Describe at least five risks that
are
associated with taking the trip.

[1] Merriam-Webster Online, s.v. “risk,” http://www.merriam-

webster.com/dictionary/Risk (accessed August 21, 2009).
[2] Project Management Institute, Inc., A Guide to the Project Management Body of
Knowledge
(PMBOK Guide), 4th ed. (Newtown Square, PA: Project Management Institute, Inc.,
2008), 273.

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[3] Tzvi Raz, Aaron J. Shenhar, and Dov Dvir, “Risk Management, Project Success,
and
Technological Uncertainty,” R&D Management 32 (2002): 101–12.

11.2 Risk Management Process

LEARNING OBJECTIVES
1. Identify the major elements in managing project risk.
2. Describe the processes for identifying project risk.
3. Describe the processes for evaluating risk.
4. Describe the processes for mitigating risk.

Managing risks on projects is a process that includes risk assessment and a

mitigation
strategy for those risks. Risk assessment includes both the identification of
potential risk
and the evaluation of the potential impact of the risk. A risk mitigation plan is
designed to
eliminate or minimize the impact of the risk events—occurrences that have a
negative
impact on the project. Identifying risk is both a creative and a disciplined
process. The
creative process includes brainstorming sessions where the team is asked to create
a list of
everything that could go wrong. All ideas are welcome at this stage with the
evaluation of
the ideas coming later.

Risk Identification

A more disciplined process involves using checklists of potential risks and

evaluating the
likelihood that those events might happen on the project. Some companies and
industries
developed risk checklists based on experience from past projects. The Construction
Industry Institute [1] developed a detailed checklist of potential risks based on
the
experience of several large construction companies executing major construction
projects.
These checklists can be helpful to the project manager and project team in
identifying both
specific risks on the checklist and expanding the thinking of the team. The past
experience

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 of the project team, project experience within the company, and experts in the
industry can
be valuable sources for identifying potential risk on a project.

Identifying the sources of risk by category is another method for exploring

potential risk on
a project. Some examples of categories for potential risks include the
following:

 Technical
 Cost
 Schedule
 Client
 Contractual
 Weather
 Financial
 Political
 Environmental
 People

The people category can be subdivided into risks associated with the people.
Examples of
people risks include the risk of not finding the skills needed to execute the
project or the
sudden unavailability of key people on the project. David Hillson [2] uses the
same
framework as the work breakdown structure (WBS) for developing
a risk breakdown structure (RBS). A risk breakdown structure organizes the
risks that have
been identified into categories using a table with increasing levels of detail
to the right.

Risks in John’s Move

In John’s move, John makes a list of things that might go wrong with his
project and uses
his work breakdown structure as a guide. A partial list for the planning
portion of the RBS
is shown below.

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Figure 11.1Risk Breakdown Structure (RBS)

The result is a more obvious understanding of where risks are most concentrated.
Hillson’s
approach helps the project team identify known risks but can be restrictive and
less
creative in identifying unknown risks and risks not easily found inside the work
breakdown structure.

Risk Evaluation

After the potential risks have been identified, the project team then evaluates the
risk
based on the probability that the risk event will occur and the potential loss
associated
with the event. Not all risks are equal. Some risk events are more likely to happen
than

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others, and the cost of a risk event can vary greatly. Evaluating the risk for
probability of
occurrence and the severity or the potential loss to the project is the next step
in the risk
management process.

The Construction Industry Institute conducted a study of large construction project

risk
evaluation and categorized risk according to the potential impact of project costs.
High-
impact risk consisted of risks that could increase the project costs by 5 percent
of the
conceptual budget or 2 percent of the detailed budget. Only thirty potential risk
events met
these criteria. These were the critical few potential risk events that the project
management team focused on when developing a project risk mitigation or management
plan. Risk evaluation is about developing an understanding of which potential risks
have
the greatest possibility of occurring and can have the greatest negative impact on
the
project. These become the critical few.

Figure 11.2 Risk and Impact

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There is a positive correlation—both increase or decrease together—between project
risk
and project complexity. A project with new and emerging technology will have a
high-
complexity rating and a correspondingly high risk. The project management team will
assign the appropriate resources to the technology managers to assure the
accomplishment of project goals. The more complex the technology, the more
resources the
technology manager typically needs to meet project goals, and each of those
resources
could face unexpected problems.

Risk evaluation often occurs in a workshop setting. Building on the identification

of the
risks, each risk event is analyzed to determine the likelihood of occurring and the
potential
cost if it did occur. The likelihood and impact are both rated as high, medium, or
low. A risk
mitigation plan addresses the items that have high ratings on both factors—
likelihood and
impact.

Risk Analysis of Equipment Delivery

For example, a project team analyzed the risk of some important equipment not
arriving to
the project on time. The team identified three pieces of equipment that were
critical to the
project and would significantly increase the costs of the project if they were late
in arriving.
One of the vendors, who was selected to deliver an important piece of equipment,
had a
history of being late on other projects. The vendor was good and often took on more
work
than it could deliver on time. This risk event (the identified equipment arriving
late) was
rated as high likelihood with a high impact. The other two pieces of equipment were
potentially a high impact on the project but with a low probably of occurring.

Not all project mangers conduct a formal risk assessment on the project. There are
barriers
to identifying risks. David Parker and Alison Mobey [3] found in a phenomenological
study
of project managers that there was a low understanding of the tools and benefits of
a
structured analysis of project risks. The lack of formal risk management tools was
seen as a

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barrier to implementing a risk management program. The level of investment in
formal risk
management was also associated with managerial psychological dimensions.

Some project managers are more proactive and will develop elaborate risk management
programs for their projects. Other managers are reactive and are more confident in
their
ability to handle unexpected events without prior planning, while some managers
are risk averse and prefer to be optimistic and not consider risks or to avoid
taking risks
whenever possible.

On projects with a low complexity profile, the project manager may informally track
items
that may be considered risk items. On more complex projects, the project management
team may develop a list of items perceived to be higher risk and track them during
project
reviews. On projects with greater complexity, the process for evaluating risk is
more formal
with a risk assessment meeting or series of meetings during the life of the project
to assess
risks at different phases of the project. On highly complex projects, an outside
expert may
be included in the risk assessment process, and the risk assessment plan may take a
more
prominent place in the project execution plan.

On complex projects, statistical models are sometimes used to evaluate risk because
there
are too many different possible combinations of risks to calculate them one at a
time. One
example of the statistical model used on projects is the Monte Carlo simulation,
which
simulates a possible range of outcomes by trying many different combinations of
risks
based on their likelihood. The output from a Monte Carlo simulation provides the
project
team with the probability of an event occurring within a range and for combinations
of
events. For example, the typical output from a Monte Carol simulation may reflect
that
there is a 10 percent chance that one of the three important pieces of equipment
will be
late and that the weather will also be unusually bad after the equipment arrives.

Risk Mitigation
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 After the risk has been identified and evaluated, the project team develops a
risk mitigation
plan, which is a plan to reduce the impact of an unexpected event. The project
team
mitigates risks in the following ways:

 Risk avoidance
 Risk sharing
 Risk reduction
 Risk transfer

Each of these mitigation techniques can be an effective tool in reducing

individual risks and
the risk profile of the project. The risk mitigation plan captures the risk
mitigation
approach for each identified risk event and the actions the project management
team will
take to reduce or eliminate the risk.

Risk Avoidance

Risk avoidance usually involves developing an alternative strategy that has a

higher
probability of success but usually at a higher cost associated with
accomplishing a project
task. A common risk avoidance technique is to use proven and existing
technologies rather
than adopt new techniques, even though the new techniques may show promise of
better
performance or lower costs. A project team may choose a vendor with a proven
track
record over a new vendor that is providing significant price incentives to
avoid the risk of
working with a new vendor. The project team that requires drug testing for team
members
is practicing risk avoidance by avoiding damage done by someone under the
influence of
drugs.

Risk Sharing

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Risk sharing involves partnering with others to share responsibility for the risk
activities.
Many organizations that work on international projects will reduce political,
legal, labor,
and others risk types associated with international projects by developing a joint
venture
with a company located in that country. Partnering with another company to share
the risk
associated with a portion of the project is advantageous when the other company has
expertise and experience the project team does not have. If the risk event does
occur, then
the partnering company absorbs some or all of the negative impact of the event. The
company will also derive some of the profit or benefit gained by a successful
project.

Risk Sharing on Pipeline in Peru

One example of risk sharing is a large United States construction firm that won a
contract
to build a pipeline in Peru. The company partnered with a construction company in
Peru
with a reputation for performing on time. The Peruvian company brought local
expertise
and the U.S. company contributed the latest construction methods. If the project
had not
successfully completed on time, both companies would have received less profit, but
the
project was successful and both companies met profit targets.

Risk Reduction

Risk reduction is an investment of funds to reduce the risk on a project. On

international
projects, companies will often purchase the guarantee of a currency rate to reduce
the risk
associated with fluctuations in the currency exchange rate. A project manager may
hire an
expert to review the technical plans or the cost estimate on a project to increase
the
confidence in that plan and reduce the project risk. Assigning highly skilled
project
personnel to manage the high-risk activities is another risk reduction method.
Experts
managing a high-risk activity can often predict problems and find solutions that
prevent
the activities from having a negative impact on the project. Some companies reduce
risk by
forbidding key executives or technology experts to ride on the same airplane.

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Risk Transfer

Risk transfer is a risk reduction method that shifts the risk from the project to
another
party. The purchase of insurance on certain items is a risk transfer method. The
risk is
transferred from the project to the insurance company. A construction project in
the
Caribbean may purchase hurricane insurance that would cover the cost of a hurricane
damaging the construction site. The purchase of insurance is usually in areas
outside the
control of the project team. Weather, political unrest, and labor strikes are
examples of
events that can significantly impact the project and that are outside the control
of the
project team.

Contingency Plan

The project risk plan balances the investment of the mitigation against the benefit
for the
project. The project team often develops an alternative method for accomplishing a
project
goal when a risk event has been identified that may frustrate the accomplishment of
that
goal. These plans are called contingency plans. The risk of a truck drivers strike
may be
mitigated with a contingency plan that uses a train to transport the needed
equipment for
the project. If a critical piece of equipment is late, the impact on the schedule
can be
mitigated by making changes to the schedule to accommodate a late equipment
delivery.

Roof Left Unfinished for Late Equipment

On one project, the project team left a section of a roof unfinished to allow the
installation
of equipment after the building was done and the roof installed. The equipment was
late,
and the project would have been delayed if the building was not completed. The
project
team left a section of the roof unfinished to allow the equipment to be placed in
the
building with the use of a crane. The roof was then completed, and the project
finished on
time.

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In this example, the equipment arriving on time to meet the project schedule was
considered a high risk. One option was to delay the end of the project. The team
developed
a contingency plan to install the roof in two phases to allow the installation of
the
equipment, if it was late. The contingency plan was more expensive and contingency
funds
were placed in the budget to cover the possibility that the equipment would be
late.

Contingency funds are funds set aside by the project team to address unforeseen
events
that cause the project costs to increase. Projects with a high-risk profile will
typically have
a large contingency budget. Although the amount of contingency allocated in the
project
budget is a function of the risks identified in the risk analysis process,
contingency is
typically managed as one line item in the project budget.

Some project managers allocate the contingency budget to the items in the budget
that
have high risk rather than developing one line item in the budget for
contingencies. This
approach allows the project team to track the use of contingency against the risk
plan. This
approach also allocates the responsibility to manage the risk budget to the
managers
responsible for those line items. The availability of contingency funds in the line
item
budget may also increase the use of contingency funds to solve problems rather than
finding alternative, less costly solutions. Most project managers, especially on
more
complex projects, will manage contingency funds at the project level, with approval
of the
project manager required before contingency funds can be used.
KEY TAKEAWAYS
 Risk management is a creative process that involves identifying,
evaluating, and
mitigating the impact of the risk event.
 Risk management can be very formal, with defined work processes, or
informal,
with no defined processes or methods. Formal risk evaluation includes the use
of
checklists, brainstorming, and expert input. A risk breakdown structure (RBS)
can
follow the work breakdown structure (WBS) to identify risk by activity.

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 Risk evaluation prioritizes the identified risks by the likelihood and the
potential
impact if the event happens.
 Risk mitigation is the development and deployment of a plan to avoid,
transfer,
share, and reduce project risk. Contingency planning is the development of
alternative
plans to respond to the occurrence of a risk event.

EXERCISES
1. A risk ___________ plans eliminates or minimizes the impact of risk events.
2. Risk management is a creative process that involves identifying,
evaluating, and
__________ the impact of risk events
3. A process for risk assessment that is parallel to the WBS is a _________
_______
_______ (three words).
4. Choose a project risk that could be related to the John’s move example that
is not
described in the text and describe a mitigation plan for that risk. You may
choose from
any part of the John’s move example that has been described in previous
chapters.
5. If you are planning a party at your residence, list three project risks and
rate each
of them for their potential impact and likelihood. Use high, medium, and low.
6. Describe the similarities and differences between risk transfer and risk
sharing.

Risk Management

Assume that you are involved in planning a wedding. What are three risks that
might
affect the ceremony or reception, and how would you mitigate the impact of
those
risks? For example, if you are planning an outdoor wedding, describe the
backup plan
in case of rain.

[1] Construction Industry Institute Cost/Schedule Task Force, Management of Project

Risks and
Uncertainties(Austin, TX: Construction Industry Institute, 1989).

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 [2] David Hillson, “Using a Risk Breakdown Structure in Project
Management,” Journal of
Facilities Management 2, no. 1 (2003): 85–97.
[3] David Parker and Alison Mobey, “Action Research to Explore Perceptions of
Risk in Project
Management,” International Journal of Productivity and Performance
Management 53, no. 1
(2004): 18–32.

11.3 Project Risk by Phases

LEARNING OBJECTIVES
1. Describe the elements of risk management during the initiation phase.
2. Describe the elements of risk management during the planning phase.
3. Describe the elements of risk management during the execution phase.
4. Describe the elements of risk management during the closeout phase.

Project risk is dealt with in different ways depending on the phase of the
project.

Initiation Phase
Risk is associated with things that are unknown. More things are unknown at
the beginning
of a project, but risk must be considered in the initiation phase and weighed
against the
potential benefit of the project’s success in order to decide if the project
should be chosen.

Risks by Phase in John’s Move

In the initiation phase of John’s move, John considers the risk of events that
could affect the
whole project. He identifies the following risks during the initiation phase
that might have a
high impact and rates the likelihood of their happening from low to high.

1. His new employer might change his mind and take back the job offer
after he’s given
notice at his old job: Low.

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2. The current tenants of his apartment might not move out in time for
him to move in
by the first day of work at the new job: Medium.
3. The movers might lose his furniture: Low.
4. The movers might be more than a week late delivering his furniture:
Medium.
5. He might get in an accident driving from Chicago to Atlanta and miss
starting his
job: Low.

John considers how to mitigate each of the risks.

1. During his job hunt, John had more than one offer, and he is confident
that he could
get another job, but he might lose deposit money on the apartment and the
mover. He
would also lose wages during the time it took to find the other job. To
mitigate the risk of
his new employer changing his mind, John makes sure that he keeps his
relationships with
his alternate employers cordial and writes to each of them thanking for their
consideration
in his recent interviews.
2. John checks the market in Atlanta to determine the weekly cost and
availability of
extended-stay motels.
3. John checks the mover’s contract to confirm that they carry insurance
against lost
items, but they require the owner to provide a detailed list with value
estimates and they
limit the maximum total value. John decides to go through his apartment with
his digital
camera and take pictures of all of his possessions that will be shipped by
truck and to keep
the camera with him during the move so he has a visual record and won’t have
to rely on
his memory to make a list. He seals and numbers the boxes so he can tell if a
box is missing.
4. If the movers are late, John can use his research on extended-stay
motels to
calculate how much it would cost. He checks the moving company’s contract to
see if they
compensate the owner for late delivery, and he finds that they do not.
5. John checks the estimated driving time from Chicago to Atlanta using
an Internet
mapping service and gets an estimate of eleven hours of driving time. He
decides that it
would be too risky to attempt to make the drive by himself in one day,
especially if he

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didn’t leave until after the truck was packed. John plans to spend one night on the
road in a
motel to reduce the risk of an accident caused by driving while too tired.

John concludes that the high-impact risks can be mitigated and the costs from the
mitigation would be acceptable in order to get a new job.

Planning Phase
Once the project is approved and it moves into the planning stage, risks are
identified with
each major group of activities. A risk breakdown structure (RBS) can be used to
identify
increasing levels of detailed risk analysis.

Risk Breakdown Structure for John’s Move

John decides to ask Dion and Carlita for their help during their first planning
meeting to
identify risks, rate their impact and likelihood, and suggest mitigation plans.
They
concentrate on the packing phase of the move. They fill out a table of risks, as
shown below.

Figure 11.5Risk Breakdown Structure (RBS) for Packing John’s Apartment

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Execution Phase

As the project progresses and more information becomes available to the project
team, the
total risk on the project typically reduces, as activities are performed without
loss. The risk
plan needs to be updated with new information and risks checked off that are
related to
activities that have been performed.

Understanding where the risks occur on the project is important information for
managing
the contingency budget and managing cash reserves. Most organizations develop a
plan for
financing the project from existing organizational resources, including financing
the project
through a variety of financial instruments. In most cases, there is a cost to the
organization

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to keep these funds available to the project, including the contingency budget. As
the risks
decrease over the length of the project, if the contingency is not used, then the
funds set
aside by the organization can be used for other purposes.

To determine the amount of contingency that can be released, the project team will
conduct
another risk evaluation and determine the amount of risk remaining on the project.
If the
risk profile is lower, the project team may release contingency funds back to the
parent
organization. If additional risks are uncovered, a new mitigation plan is developed
including the possible addition of contingency funds.

Closeout Phase
During the closeout phase, agreements for risk sharing and risk transfer need to be
concluded and the risk breakdown structure examined to be sure all the risk events
have
been avoided or mitigated. The final estimate of loss due to risk can be made and
recorded
as part of the project documentation. If a Monte Carlo simulation was done, the
result can
be compared to the predicted result.

Risk Closeout on John’s Move

To close out the risk mitigation plan for John’s move, John examines the risk
breakdown
structure and risk mitigation plan for items that need to be finalized. He makes a
checklist
to be sure all the risk mitigation plans are completed, as shown below.

Figure 11.6Closeout of Risk Mitigation Plan for John’s Move

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Risk is not allocated evenly over the life of the project. On projects with a high
degree of
new technology, the majority of the risks may be in the early phases of the
project. On
projects with a large equipment budget, the largest amount of risk may be during
the
procurement of the equipment. On global projects with a large amount of political
risk, the
highest portion of risk may be toward the end of the project.

KEY TAKEAWAYS
 During the initiation phase, risks are identified that could threaten the
viability
of the project. Mitigation options are considered to see if they would be
sufficient
to protect the project.
 During the planning phase, risks are identified and analyzed for each
activity
group in a risk breakdown structure, and mitigation is planned for each risk
 During the execution phase, risks are checked off as activities are
completed or
mitigation is performed if loss does occur. New risks are identified and added
to
the plan.
 During the closeout phase, insurance contracts are cancelled and
partnerships
terminated. A summary of actual costs associated with risks are compared with
initial estimates to refine estimating capabilities. The successes and failures
of the

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 risk management plan are summarized and saved with the project documentation
to add to the company’s corporate knowledge.

EXERCISES
1. High-risk events that require expensive mitigation options threaten the
choice
of the project during the _________ phase.
2. A risk breakdown structure is developed during the _______ phase.
3. Risk transfers and risk sharing arrangements are terminated during the
___________ phase.
4. If you plan an outdoor wedding, what is a risk that would threaten the
project
in the initiation phase and a mitigation plan that would allow the project to
proceed?
5. In your own words, describe risk management during the planning phase.
6. In your own words, describe risk management during the closeout phase?

Risk Assessment

Recall a project that you considered at one time but decided against during
the
initiation phase because the risks were too great or the mitigation plan was
insufficient to proceed. Describe the project, the risks, the mitigation plan,
and
why you chose not to go forward.

11.4 Project Risk and the Project

Complexity Profile
LEARNING OBJECTIVE
1. Identify the relationship between project risk and external, internal,
technical,
and environmental complexity.

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Risk seems to have a positive correlation to complexity. High-risk projects are in
most
cases highly complex. The process of conducting a risk analysis focuses on
understanding
what can go wrong and the likelihood that it will go wrong. The project team then
develops
a project mitigation plan that addresses the items that were identified as high
risk. The
complexity analysis explores the project from the perspective of what elements on
the
project add to project complexity. The result of this analysis is the information
needed by
the project leadership to develop an appropriate execution plan. This execution
plan also
contains the risk management plan.

Although increased complexity on a project increases the project risk profile, risk
is only
one component of the complexity profile, and the manageability of the risk is also
reflected
in the complexity level of the project. For example, the organizational component
of the
project may be extremely complex with decision making shared among several
independent clients. The project management team will develop an execution plan
that
includes developing and maintaining alignment among the various clients. Although
the
organizational risk of the project decreases with the development of the execution
plan, the
organizational approach of the client did not change the complexity level of the
project. If
the Darnall-Preston Complexity Index (DPCI) is used to rate the project, high
ratings in
each category carry their own types of increased risks.

External Complexity
Projects that have a high score in the external complexity category in the DPCI are
larger
and longer than usual for the project management group and the project manager and
the
available resources are lacking. Due to lack of experience on this size project,
unknown
risks are significant. The inadequacy of resources will cause risks that are more
predictable.

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Internal Complexity
Projects with high scores for internal complexity have risks to the budget,
schedule, and
quality due to organizational complexity and changes of scope due to lack of
clarity in
project and scope statements.

Technological Complexity
High scores in technological complexity are associated with high levels of risk due
to
unknown flaws in the technology and lack of familiarity with it. These problems
result in
risks to the schedule, budget, and quality.

Environmental Complexity
Environmental complexity includes legal, cultural, political, and ecological
factors. High
scores for complexity in this category imply high risks for delay and expensive
resolution to
lawsuits, public opposition, changes for political considerations, and unforeseen
ecological
impacts.

KEY TAKEAWAYS
 There is a positive correlation between the complexity of a project and the
risk.
Increased levels of complexity imply more people, newer technologies, and
increased internal and external unknown factors.
 High scores for external complexity imply high risks to the schedule,
budget,
and quality due to unknown factors and limited resources.
 High scores for internal complexity imply high risks to the budget,
schedule,
and quality due to organizational complexity and changes of scope due to lack
of
clarity in project and scope statements.

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 High scores for technological complexity imply high risks to the budget,
schedule, and quality due to unknown flaws in the technology and lack of
familiarity with it.
 Environmental complexity includes legal, cultural, political, and
ecological
issues. High scores for complexity in this category imply high risks for delay
and
expensive resolution to lawsuits, public opposition, changes for political
considerations, and unforeseen ecological impacts.

EXERCISES
1. There seems to be a ______ correlation between project complexity and risk.
2. One complexity category that is likely to have high risks due to unknown
causes is _______, due to lack of experience with the size of project.
3. How does a high degree of complexity in a project’s environment affect the
level of risk?

Environmental Risks

Identify a project with which you are familiar or one that has been in the
news
recently where the external environmental complexity caused increased costs or
delays. Describe the impact of the risk, and the mitigation and its
effectiveness. If
the mitigation was ineffective, describe how you might have prepared a
different
mitigation plan.

11.5 Exercises
Exercises at the end of the chapter are designed to strengthen your understanding
and
retention of the information recently acquired in the chapter.

ESSAY QUESTIONS

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 Write several paragraphs to provide more in-depth analysis and consideration
when
answering the following questions.

1. Choose a simple project with which you are familiar and describe a risk
that is
typical of each phase of the project and a mitigation plan for those four
risks.
2. Assume that you are considering the purchase of a house. What are examples
of
each of the four types of risk mitigation that are associated with buying a
house?
Explain your choice of each example and relate it to the definition of each
type of risk
mitigation.
3. Assume that you are working on a complex project to add a wing to a
hospital that
is next to a natural wetland. Using the four categories of the Darnall-Preston
Complexity Index, identify a high-impact risk and explain your choice.

DISCUSSION
The exercises in this section are designed to promote exchange of information
among
students in the classroom or in an online discussion. The exercises are more
open
ended, which means that what you find might be completely different from what
your
classmates find, and you can all benefit by sharing what you have learned.

1. Choose a situation with which you are familiar where a risk event occurred
that
had a high impact on a project causing it to exceed the contingency allowances
in the
schedule or budget. Do you think this event was an unknown or known risk? What
additional mitigation efforts (if any) should be used on a similar project in
the future?
Consider situations described by your classmates and contribute ideas for
mitigation
of events in their projects.
2. Consider your personal health. What are two examples of known risks and a
mitigation plan for those two risks? Describe your mitigation plan for unknown
risks.
Consider the risks and plans described by your classmates and make suggestions
for
other mitigation options.

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 Chapter 12
Project Procurement and Closure

To achieve the objectives of the project, the management team will purchase goods
and
some services. The process of obtaining goods and services from providers who are
outside
of the organization is procurement. This chapter discusses the process for
selecting the
work that will be procured and the different methods and processes for procuring
the
equipment, materials, and services for the project.

12.1 Identifying the Need for Resources

Outside the Organization
LEARNING OBJECTIVES
1. Identify the factors that are considered when deciding whether to buy goods
from
within the organization or to obtain them from outsiders.
2. Identify what factors are considered when deciding to outsource or perform
the
work within the organization.

The project team decides the work that will be self-performed—performed by members
of
the project team—and the work that will be outsourced to others. The procurement
strategy focuses on the work that will be outsourced—performed by outsiders.

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Luu, Ng, and Chen [1] studied project procurement selection priorities and
identified budget
and schedule as the most important considerations in the decision to outsource
activities.
This study of construction projects also identified other items that project
managers must
consider in developing a procurement strategy, including quality, risk, complexity,
and
flexibility. Some outsourcing decisions are easy.

Outsourcing Steel and Concrete in New York

A construction company has a contract to build a large building in downtown New
York.
Most, if not all, the construction materials, such as steel and concrete, will be
purchased
from companies that specialize in steel and concrete. Existing companies that
produce and
sell steel can provide the steel the project needs at a much lower cost and faster
than if the
project manager’s organization attempted to build the capacity itself.
Some outsourcing decisions—sometimes called make or buy decisions—are more
difficult.
On the same building construction project, new construction materials and methods
are
required that will make the building more energy efficient. The project manager can
outsource this portion of the project to companies that have this expertise or
develop this
expertise on the project and self-perform the work. The costs of developing this
expertise
within the project will be more expensive and may take more time than outsourcing
this
work.

Self-performing this work also has benefits. The project team would develop this
expertise
and the additional expertise would add value to the parent company and save money
on
future projects. The project management team would have greater control over the
work
because the work would be performed by members of the project team instead of
outsiders. Self-performing and outsourcing the work have both benefits and risks.

This decision is primarily influenced by the following:

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 Cost (budget)
 Schedule
The following factors also influence outsourcing decisions:
 Risk
 Quality
 Flexibility

Outsourcing Versus Self-Performing

On the New York building construction project, the project manager decided to
outsource
the portion of the work that required new methods and materials. The project
team
assigned engineers from the project team to evaluate the work during the
project and to
assess the appropriate methods and costs for the parent company to develop this
capacity
within the company. The additional costs of developing the capacity and the
additional
risks of implementing a new method with existing resources outweighed the
benefits of
developing the capacity within the organization.

The project procurement strategy begins with these self-perform or buy

decisions.

New York Construction Project

On the New York building construction project, the basic engineering and
construction
activities are core expertise of the parent company, and the project team had
access to the
qualified resources to perform the work. The decision to self-perform this
portion of the
work was easy because the company had a cost and schedule advantage by using
the
existing resources. The purchase of the steel, concrete, and other commodities
was also
easy because the costs of developing those resources far outweighed the benefit
of
purchasing them.

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Some of the procurement decisions are not so obvious and the project team evaluates
the
cost, schedule, quality, flexibility, and risk implication of self-performing
versus
outsourcing the work.

KEY TAKEAWAYS
 The factors that influence procurement are primarily cost and schedule but
also
include risk, quality, and flexibility.
 To determine whether to outsource or do the work within the organization,
consider which option is less costly and which option can deliver the work on
time.

EXERCISES
1. The primary factors that influence procurement are cost and ____________.
2. In addition to the two primary factors that influence procurement, what are
three
other important factors?
3. What is one advantage of doing the work within the organization instead of
outsourcing it?

Internalize your learning experience by preparing to discuss the following.

Choose a situation with which you are familiar where you or your organization
chose
to hire someone outside your organization instead of developing the skill
yourselves.
What factors were most important in making the choice and how do they relate
to the
factors described in this section?

[1] Duc Thanh Luu, S. Thomas Ng, and Swee Eng Chen, “Parameters Governing the
Selection of Procurement System,” Journal of Engineering, Construction, and
Architectural Management 10, no. 3 (2003): 209–18.

12.2 Procurement Plan

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 LEARNING OBJECTIVES
1. Describe the role of suppliers.
2. Describe the role of vendors.
3. Describe the role of partners.

After the outsourcing versus self-performing decisions are made, the procurement
team
develops the purchasing plan.

The method of purchasing products or services depends on the uniqueness and

importance
of the product or service. One way to organize the procurement plan is by the type
of
relationship with the providers of the outsourced goods or services.

Suppliers
Some of the goods or services are commonly available with little variation in
quality or
availability. Such goods and services are called commodities. The providers of
commodities
aresuppliers and there are usually several from which to choose. Purchasing
commodities
from suppliers focuses on achieving the lowest cost. Cost of commodities can often
be
found in the supplier’s catalog. On smaller, less complex projects, supplies can be
purchased as needed from the supplier’s catalog.

Additional cost savings are often available if large quantities of a commodity are
purchased
from the same supplier. On larger, more complex projects, a list of materials and
supplies is
developed from the project cost estimate. This list is provided to suppliers as
a request for quote (RFQ), and the suppliers respond with their lowest price. To
avoid
choosing a bid from a company that will make a promise it cannot keep, many
organizations will maintain a list of suppliers that meet the organization’s
requirements.
These requirements usually include the proven ability to meet the quality and
schedule
specifications.

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The project management team develops a procedure for requesting a quote. On smaller
projects, the parent purchasing organization may process all RFQs. On larger
projects, a
procurement organization is established with expertise in purchasing. The
purchasing
team will develop a list of all procurement requirements for the project and
develop a
procurement schedule that assures the materials will be available to the project
when
needed.

The project team develops an RFQ based on the quantity and schedule needs of the
project
and sends the RFQ to the identified qualified suppliers. The suppliers then develop
a quote
that lists the specific materials to be provided, the price for each, and a
schedule for
delivery. The project team evaluates each quote from suppliers and determines that
the
supplier bid meets all the requirements, and in most cases, the supplier with the
lowest
price will be awarded the bid.

RFQ for Housing Contractor

A housing contractor who is building ten identical houses develops a materials list
that
includes all the carpentry, plumbing, and electrical supplies needed to build all
ten houses.
The housing contractor develops an RFQ for all these materials, including the
construction
schedule, and submits the RFQ to the four largest building supply companies in the
region.
Each of the supply companies decides to bid on the project and provides a bid for
the
materials in the RFQ. One of the bidders has the lowest price but is unable to
deliver the
materials to the job site. The project team calculates the cost of transporting the
materials
to the job site. After the cost of transportation is added to the bid, it is no
longer the lowest
total cost. The bidder with the total lowest total cost is awarded the contract.

Some organizations that do a large number of projects will develop a relationship

with
one or two suppliers based on developing cost savings for both organizations. This
relationship is commonly called a key supplier relationship.

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 Key Supplier for Housing Supplies
The housing contractor develops a key supplier relationship with one or two of
the
building supply companies. The building supply company would guarantee a 10
percent
discount on all materials and the contractor would promise to purchase
exclusively from
the key supplier. Both organizations save the cost and time associated with
preparing the
bid. The building supply company plans on a consistent volume of business from
the
contractor and the contractor can expect priority treatment when supplies are
scarce.

Vendors

Vendors often provide a unique product or service that cannot be readily

purchased in the
marketplace. The vendor typically provides a product or service that is
designed for the
project. The following are examples of products or services provided by
vendors:

 A large military contract to design and build a new fighter aircraft

 A new software program design to improve the efficiency of a hospital
emergency
room
 The design and construction of a blast furnace for a new steel mill

Products and services from vendors need input and insight from the vendor.
Instead of
issuing a request for quote (RFQ) for a list of commodities, the project team
issues
arequest for proposal (RFP). Companies responding to an RFP are invited to
provide
creative approaches to adding value to the project. Bidders are encouraged to
offer design
alternatives, alternative uses of materials, and scheduling alternatives that
meet all the
project requirements and also reduce the total project cost. The bids are
evaluated on the
total value to the project, including the contribution to the project goals.

RFP for Mining Operation

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A copper mining project in Argentina included the design and construction of the
mine site,
the extraction of copper from the raw materials, the building of a pipeline to
transport the
copper ore to the Atlantic coast, and the construction of a port to enable the
loading of the
copper ore into various size ships. The construction materials, such as lumber,
steel, and
concrete, were purchased through suppliers, including key suppliers.
Some of the equipment used to extract the copper ore from the raw materials costs
several
million dollars and is only fabricated by a few companies. The project team designs
the
equipment to meet characteristics of the mining environment in Argentina: size,
hardness,
and composition of the raw material. The bid documents sent to the mining equipment
vendors included the design specification and performance specification of the
equipment,
the project schedule, and the mining process. A request for proposal (RFP) was
issued to
each of the vendors.

Because vendor performance is critical to the success of the project, the

management of the
vendor relationship is a project management priority. Project management will often
implement processes that encourage the vendors to submit suggestions that will
reduce
total project cost, shorten the schedule, or improve the performance. The project
management team will often assign someone from the team to monitor the relationship
and provide support from project resources to help assure vendor success.

Partners

If the parent organization lacks key skills or relationships, it might work with
other
organizations as partners—especially on international projects.

Partnership on Mining Project

In the Argentina mining project example, the United States parent organization had
project
management, engineering, procurement, construction, and mining technology
expertise.
The company also had relationships with major mining equipment vendors. The U.S.

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construction company partnered with an Argentinean company that had expertise and
relationships important to the success of the project.
The Argentinean company contributed local knowledge of the construction workforce;
local engineering and construction practices, knowledge, and expertise in the
government
permitting processes; and an existing relationship with potential key suppliers and
local
vendors.

A partnership is a formal arrangement to execute the project with each party

contributing
resources. In most partnerships, both parties benefit from the success of the
project and
share the costs associated with a less successful project. Critical to the success
of a
partnership is the clear definition of roles and responsibilities on the project, a
common
understanding of the project goals, and a scope of work for each partner.

Building the relationship between major partners on the project is similar to

building
relationships with clients. On a large, complex project, a partnership alignment
session is
often required to build the trust required for open communication channels.
Maintaining
the relationship permits more effective problem solving and coordinated action on
the
project. A well-managed partnering relationship can contribute to the achievement
of
project goals, reduce overall costs, and shorten the project schedule. In most
cases, the
parent organization is aware of weaknesses in the project resources or skills and
searches
for a potential partner that has the needed resources or skills. In our Argentinean
example,
the parent company knew that construction experience in Argentina would be
important to
a successful project. Both companies will research the capability of the other
company to
assure that the partnership is appropriate for both companies.

Biotech Plant Partnership in Puerto Rico

On a project to build a new biotech plant in Puerto Rico, a large engineering and
construction company selected a Puerto Rican civil engineering company to design
the site
work on the project. Because the plant was needed quickly, the project schedule was
an
important component of every discussion and meeting the project end date was a
major

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goal. The Puerto Rican Company was asked to begin developing the civil drawings
early,
before much of the needed information had been developed. This was a situation
where a
partnering relationship would benefit the project. Both companies would mutually
support
each other to achieve project goals and both would benefit from project success.

In this situation, the project procurement plan specified the development of a

subcontract
for the civil engineering, and a contract was developed with a clear scope of work
and a
cost based on completing the work in the contract on time and according to
specification.
Because the aggressive project schedule required the civil engineering company to
begin
work before all the needed information was available, change orders were required
when
new information became available. The contract allowed several days to evaluate the
impact of the change on cost and schedule, and the time evaluation process began to
cause
delays in the project.

Eventually, a new contract was developed to make the Puerto Rican company a
partner.
These new partnering arrangements allowed the engineers to get early information
and
contribute ideas that would shorten the schedule. This case is an example of the
need to
evaluate the project goals and environment and develop a procurement strategy that
matches the conditions of the project.

KEY TAKEAWAYS
 Commodities are purchased through suppliers using a request for quote (RFQ)
and
selected on the basis of price. An exception is the key supplier relationship
where the
supplier-organization relationship is long term and the supplier passes along
some of
the savings of avoiding the bidding process.
 Vendors provide products and services that are designed for the project
based on a
request for proposal (RFP) that invites the vendors to meet the goals of the
request
using their products and skills.

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 If the organization lacks key skills or relationships, it might form a
partnership
arrangement with another company to share the benefits and risks of the
project.

EXERCISES
1. Commodities are described in an ______ (three-letter acronym).
2. The objectives of the work are described in an _____________ (three-letter
acronym), and the details of how to accomplish those objectives is proposed by
the
vendor.
3. If a project takes place in a different country, the project team might
seek a
_________ with a local company to provide local contacts and expertise in
local issues.
4. What is different about a key supplier relationship?
5. What is the difference between an RFP and an RFQ?
6. How is a partnership different from a vendor relationship?

Internalize your learning experience by preparing to discuss the following.

If you were building your own house, what would be an example of something
that
would be procured using an RFQ and something that would be procured with an
RFP?
Describe how your choices meet the descriptions of products or services
procured
from suppliers or vendors.

12.3 Selecting the Type of Contract

LEARNING OBJECTIVES
1. Identify factors that determine which type of contract to select.
2. Describe the types of fixed cost contracts.
3. Describe the types of cost reimbursable contracts.

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 An agreement between the organization and an outside provider of a service or
materials is
a legalcontract. To limit misunderstandings and make them more enforceable,
contracts
are usually written documents that describe the obligations of both parties.

Because legal agreements often create risk for the parent organization,
procurement
activities are often guided by the policies and procedures of the parent
organization. After
the project management team develops an understanding of what portions of the
project
work will be outsourced and defines the type of relationships that are needed
to support
the project execution plan, the procurement team begins to develop
the contracting plan.
On smaller, less complex projects, the contract development and execution is
typically
managed through the parent company or by a part-time person assigned to the
project. On
larger, more complex projects, the procurement team can consist of work teams
within the
procurement function with special expertise in contracting. The contract plan
defines the
relationship between the project and the subcontractors (supplier, vendor, or
partner) and
also defines a process for making changes in the agreement to accommodate
changes that
will occur on the project. This change management process is similar to the
change
management process used with the project agreement with the project client.

The contracting plan of the project supports the procurement approach of the
project. The
following are some factors to consider when selecting the type of contract:

 The uncertainty of the scope of work needed

 The party assuming the risk of unexpected cost increases
 The importance of meeting the scheduled milestone dates
 The need for predictable project costs

There are several types of contracting approaches and each supports different
project
environments and project approaches. The legal contracts that support the
procurement

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plan consist of two general types of contract: the fixed price and the cost
reimbursable
contracts, with variations on each main type.

Fixed Price Contracts

The fixed price contract is a legal agreement between the project organization and

an
entity (person or company) to provide goods or services to the project at an
agreed-on
price. The contract usually details the quality of the goods or services, the
timing needed to
support the project, and the price for delivering goods or services. There are
several
variations of the fixed price contract. For commodities and goods and services
where the
scope of work is very clear and not likely to change, the fixed price contract
offers a
predictable cost. The responsibility for managing the work to meet the needs of the
project
is focused on the contractor. The project team tracks the quality and schedule
progress to
assure the contractors will meet the project needs. The risks associated with fixed
price
contracts are the costs associated with project change. If a change occurs on the
project
that requires a change order from the contractor, the price of the change is
typically very
high. Even when the price for changes is included in the original contract, changes
on a
fixed price contract will create higher total project costs than other forms of
contracts
because the majority of the cost risk is transferred to the contractor, and most
contractors
will add a contingency to the contract to cover their additional risk.

Fixed price contracts require the availability of at least two or more suppliers
that have the
qualifications and performance histories that assure the needs of the project can
be met.
The other requirement is a scope of work that is most likely not going to change.
Developing a clear scope of work based on good information, creating a list of
highly
qualified bidders, and developing a clear contract that reflects that scope of work
are
critical aspects of a good fixed priced contract.

Fixed Total Cost Contract

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If the service provider is responsible for incorporating all costs, including
profit, into the
agreed-on price, it is a fixed total cost contract. The contractor assumes the
risks for
unexpected increases in labor and materials that are needed to provide the service
or
materials and in the quantity of time and materials needed.

Fixed Price with Price Adjustment

The fixed price contract with price adjustment is used for unusually long projects

that span
years. The most common use of this type of contract is the inflation-adjusted
price. In some
countries, the value of its local currency can vary greatly in a few months, which
affects the
cost of local materials and labor. In periods of high inflation, the client assumes
risk of
higher costs due to inflation, and the contract price is adjusted based on an
inflation index.
The volatility of certain commodities can also be accounted for in a price
adjustment
contract. For example, if the price of oil significantly affects the costs of the
project, the
client can accept the oil price volatility risk and include a provision in the
contract that
would allow the contract price adjustment based on a change in the price of oil.

Fixed Price with Incentive Fee Contract

Fixed price with incentive fee is a contract type that provides an incentive for

performing
on the project above the established baseline in the contract. The contract might
include an
incentive for completing the work on an important milestone for the project. Often
contracts have a penalty clause if the work is not performed according to the
contract. For
example, if the new software is not completed in time to support the start-up of a
new
plant, the contract might penalize the software company a daily amount of money for
every
day the software is late. This type of penalty is often used when the software is
critical to
the project and the delay will cost the project significant money.

Incentive Fee on Copper Mine Project

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A project in South America to design and construct a copper mine would supply
copper to
several companies throughout the world. The copper that would be produced by the
mine
was sold before the mine was complete and ships were scheduled to make the delivery
dates to processing plants.
Any delay in the project would mean a delay in shipping and significant loss to the
mine,
the shipping company, and the plants that were expecting the copper. Including an
incentive fee for completing the project on time and including the important
subcontracts
increased the likelihood that the mine would make copper deliveries on time.

Fixed Unit Price

If the service or materials can be measured in standard units, but the amount
needed is not
known accurately, the price per unit can be fixed—a fixed unit price contract. The
project
team assumes the responsibility of estimating the number of units used. If the
estimate is
not accurate, the contract does not need to be changed, but the project will exceed
the
budgeted cost.

Fixed Unit Price Contract for Concrete

An example of a fixed price contract is a contract for the concrete needed for the
foundation
of a building. The project contracted for the concrete company to supply 1,000
cubic yards
(CY) at 5,000 PSI (hardness standard) of concrete at the project site according to,
and in
support of, the project schedule for $70 per square yard. This is an example of a
unit price
contract. If the project only uses 970 CY, then the total costs will be lower. If
the project
uses 1,050 CY, then the costs will be higher.
An alternative pricing would be to establish a fixed price of $70,000 (1,000 CY ×
$70.00).
Both the unit price approach and the total costs approach are fixed price
contracts.

Figure 12.7 Table of Fixed Price Contracts and Characteristics

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Cost Reimbursable Contracts
In a cost reimbursable contract, the organization agrees to pay the contractor for
the cost of
performing the service or providing the goods. Cost reimbursable contracts are also
known
ascost plus contracts. Cost reimbursable contracts are most often used when the
scope of
work or the costs for performing the work are not well known. The project uses a
cost
reimbursable contract to pay the contractor for allowable expenses related to
performing
the work. Since the cost of the project is reimbursable, the contractor has much
less risk
associated with cost increases. When the costs of the work are not well known, a
cost
reimbursable contract reduces the amount of money the bidders place in the bid to
account
for the risk associated with potential increases in costs.

The contractor is also less motivated to find ways to reduce the cost of the
project unless
there are incentives for supporting the accomplishment of project goals. Cost
reimbursable
contracts also require good documentation of the costs that occurred on the project
to
assure that the contractor gets paid for all the work performed and to assure that
the
organization is not paying for something that was not completed.

Cost Reimbursable Contract to Drill Wells

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A project to build a new plant in an area that did not have sufficient water
included the
drilling of water wells to produce several thousand gallons of water a day for the
new plant.
Although geological surveys indicated there was sufficient water to meet the
plant’s
requirements, the number of wells needed was unknown. The project developed a cost
reimbursable contract that paid the well drilling contractor for allowable costs
associated
with drilling the wells.

Allowable costs included the costs associated with locating all the equipment and
materials
to the project site, the labor and materials used to drill the wells, daily costs
for the use of
the drilling rigs, routine maintenance of the drilling equipment, the room and
board for the
workers, and administrative fees and profit. The contractor collected the costs
associated
with drilling the wells each month and submitted a bill to the project accountant.

The contractor is paid an additional amount above the costs. There are several ways
to
compensate the contractor.

Cost Reimbursable Contract with Fixed Fee

A cost reimbursable contract with a fixed fee provides the contractor with a fee or
profit
amount that is determined at the beginning of the contract and does not change.

Fixed Fee for Providing Water

On the new water plant project, the project accountant reviewed each bill,
including time
cards for labor, invoices for materials, and other documents that supported the
invoice. The
contractor was then reimbursed for the allowable costs plus the administrative fee
and a
fixed amount for his profit.

Cost Reimbursable Contract with Percentage Fee

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A cost reimbursable contract with a percentage fee pays the contractor for costs
plus a
percentage of the costs, such as 5 percent of total allowable costs. The contractor
is
reimbursed for allowable costs and is paid a fee.

Percentage Fee to Evaluate Dam in West Virginia

A small community in West Virginia was worried about the structural integrity of a
dam
above the town. The county council was worried the dam would break and cause loss
of life
and property. They contracted with a civil engineering firm to evaluate the dam
structure
and attest to the structural soundness. The firm hired an expert from outside the
area and
paid the expert $1,000.00 per day plus expenses such as meals, travel, and lodging.
The
civil engineering firm billed the community for the expert’s fees and expenses plus
10
percent of the total.

Cost Reimbursable Contract with an Incentive Fee

A cost reimbursable contract with an incentive fee is used to encourage performance

in
areas critical to the project. Often the contract attempts to motivate contractors
to save or
reduce project costs. The use of the cost reimbursable contract with an incentive
fee is one
way to motivate cost reduction behaviors.

Incentive Fee for Road Project

A road construction company won a contract to build a small road to the new county
courthouse. The estimate to complete the road was $10 million. The contract
received a
cost reimbursable contract that would pay all costs plus a 3 percent fee. The
contactor
could also earn an incentive by performing the work for less than $10 million. The
contract
might include a fee that would pay the contract 20 percent of all savings below the
estimated $10 million. In this case, the county got the road at a lower cost, and
the
contractor made more money.

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The contract could have focused on schedule and paid a bonus for completing ahead
of
schedule. This type of contract requires that the project management team has the
capability to assure the quality of work performed meets project specifications and
the
savings was not generated through reducing the quality of the work.

Cost plus Contract with Award Fee

A cost plus contract with award fee reimburses the contractor for all allowable
costs plus a
fee that is based on performance criteria. The fee is typically based on goals or
objectives
that are more subjective. An amount of money is set aside for the contractor to
earn
through excellent performance, and the decision on how much to pay the contractor
is left
to the judgment of the project team. The amount is sufficient to motivate excellent
performance.

The following Reuters story is about the use of an award fee to incentivize the
contractor’s
performance in maintaining the ship’s performance during transfer to other owners.

VSE Corporation (NASDAQ GS: VSEC) reported today that it has been awarded a $249
million cost-plus award fee contract option modification by the Naval Sea Systems
Command that can be exercised by the Navy to provide one additional year of
continued
support to NAVSEA PMS 326 and 333 for ex-U.S. Navy ships that are sold, leased or
otherwise transferred through the Foreign Military Sales (FMS) program to FMS
clients.

This contract provides for services supporting U.S. ships that are sold, leased or
otherwise
transferred to FMS clients by providing engineering, technical, procurement,
logistics, test,
inspection, calibration, repair, maintenance and overhaul support services,
including
reactivation and modernization.

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Since 1995, VSE’s International Group, GLOBAL Division (formerly BAV Division) has
transferred 42 ships to foreign governments. VSE is currently reactivating EX-USNS
Andrew J. Higgins (TAO-190) for transfer to Chile. Additionally, VSE actively
supports
various countries through the follow-on technical support requirements of the
contract,
providing training, maintenance, repair, and in-country infrastructure improvement
assistance in support of transferred ships. Countries currently supported by VSE
include
Bahrain, Egypt, Japan, Mexico, Taiwan, Turkey, Poland, Philippines, Italy and
Romania.

“We are extremely pleased to have won this award. It is a testament to the
confidence and
trust we have earned from the U.S. Navy and their foreign clients for the past 14
years,”
said VSE CEO/COO/President Maurice “Mo” Gauthier. “We look forward to continuing to
deliver excellence and innovative technology solutions to the world’s navies for
years to
come.” [1]

Time and Materials Contracts

On small activities that have a high uncertainty, the contractor might charge an
hourly rate
for labor, plus the cost of materials, plus a percentage of the total costs. This
type of
contract is calledtime and materials (T&M). Time is usually contracted on an hourly
rate
basis and the contractor usually submits time sheets and receipts for items
purchased on
the project. The project reimburses the contractor for the time spent based on an
agreed-
on rate and the actual cost of the materials. The fee is typically a percent of the
total cost.

Time and materials contracts are used on projects for work that is smaller in scope
and has
uncertainty or risk, and the project rather than the contractor assumes the risk.
Since the
contractor will most likely include contingency in the price of other types of
contracts to
cover the high risk, T&M contracts provide lower total cost to the project.

Figure 12.9 Table of Contract Types and Characteristics

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To minimize the risk to the project, the contract typically includes a not-to-
exceed amount,
which means the contract can only charge up to the agree amount. The T&M contract
allows the project to make adjustments as more information is available. The final
cost of
the work is not known until sufficient information is available to complete a more
accurate
estimate.

Archeological Site Evaluation

On a road construction project, the survey team discovers an archeological site.
Contractors
are required to preserve archeological sites and the project team explores ways to
advance
the schedule while a decision is made on how to handle the site. The project issues
a T&M
contract to an archeologist to determine the nature of the site and develop a plan
to
preserve the integrity of the site. A T&M contract is awarded because the size and
character
of the site is unknown and the amount of time and the type of equipment needed to
explore
the site is also unknown.

An archeologist from the local university was issued a T&M contract to cover the
labor and
expenses to explore the site and develop a plan. An hourly rate was established for
each
member of the five-person archeological team. Equipment rental fees plus 15 percent
was

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paid on all equipment rented and supplies used. The archeological team’s profit was
incorporated into the labor rates.

A not-to-exceed amount was also included in the contract to capture the team’s
estimate of
the amount of work. A contract change order would increase the not-to-exceed number
when more information was available.

Progress Payments and Change Management

Vendors and suppliers usually require payments during the life of the contract. On
contracts that last several months, the contractor will incur significant cost and
will want
the project to pay for these costs as early as possible. Rather than wait until the
end of the
contract, a schedule of payments is typically developed as part of the contract and
is
connected to the completion of a defined amount of work or project milestones.
These
payments made before the end of the project and based on the progress of the work
are
called progress payments. For example, a concrete supplier on a construction
project may
bill the contract for the amount of concrete poured the previous month plus the
profit
earned during that period. On a training project, the contract might develop a
payment
schedule that pays for the development of the curriculum, and payment is made when
the
curriculum is completed and accepted. In each case, there is a defined amount of
work to be
accomplished, a time frame for accomplishing that work, and a quality standard the
work
must achieve before the contractor is paid for the work.

Just as the project has a scope of work that defines what is included in the
project and what
work is outside the project, vendors and suppliers have a scope of work that
defines what
they will produce or supply to the company. (Partners typically share the project
scope of
work and may not have a separate scope of work.) Often changes occur on the project
that
require changes in the contractor’s scope of work. How these changes will be
managed
during the life of the project is typically documented in the contract. Capturing
these

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changes early, documenting what changed and how the change impacted the contract,
and
developing a change order (a change to the contract) are important to maintaining
the
progress of the project. Conflict among team members will often arise when changes
are
not documented or when the team cannot agree on the change. Developing and
implementing an effective change management process for contractors and key
suppliers
will minimize this conflict and the potential negative effect on the project.

KEY TAKEAWAYS
 Contract selection is based on uncertainty of scope, assignment of risk,
need for
predictable costs, and the importance of meeting milestone dates.
 Total fixed cost is a single price where the scope is well defined. A fixed
price with
incentive contract offers a reward for finishing early or under budget or a
penalty for
being late. A fixed price with adjustment allows for increases in cost of
materials or
changes in currency values. A fixed unit price contract sets a price per unit,
but the
exact number of units is not known.
 In a cost reimbursable contract, the project pays for costs. A cost plus
fixed fee
contract assures the contractor of a known fee. A cost plus percentage fee
calculates
the fee as a percentage of the costs. A cost plus incentive fee sets goals for
the
contractor to achieve that would result in a bonus. A cost plus award fee is
similar, but
the goals are more subjective. Time and materials contracts pay for costs plus
an
hourly rate for the contractor’s time.

EXERCISES
1. A key factor in choosing the type of contract is the uncertainty of the
______, risk,
cost, or schedule of the activity.
2. A contract with an _____________ fee might reward the contractor for
finishing
early.
3. Contracts that pay the contractor’s costs are ____________ contracts.

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4. Which type of contract is most appropriate to use if the scope is extremely
well
known, and which type is most appropriate if the scope is very uncertain?
Explain
your choices.
5. Why would a water well drilling company prefer a cost reimbursable contract
versus a fixed cost contract?

Internalize your learning experience by preparing to discuss the following.

If you were a contractor, which type of contract would you prefer most and
which
would you like least? Explain your choices. Your explanation should
demonstrate
that you are familiar with the definitions of the contracts you chose and at
least
one similar type of contract.

[1] VSE Corporation, “VSE Awarded $249 Million Cost-Plus Award Fee Contract Option
Modification by Navy,” Business Wire, August 24,
2009, http://www.businesswire.com/portal/site/home/permalink/?
ndmViewId=news_view&newsId=20090824006017&newsLang=en (accessed October 5, 2009).

12.4 Procurement Process
LEARNING OBJECTIVES
1. Describe the components of the procurement plan.
2. Identify the decisions made when selecting the type of contract.
3. Describe how bidders are qualified, solicited, and chosen.
4. Identify the methods used to manage the contracts.

The project procurement cycle reflects the procurement activities from the decision
to
purchase the material or service through the payment of the bills and closing of
procurement contracts.

Procurement Plan
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 After the decision has been made to purchase goods or outsource services, the
procurement team develops a plan that includes the following:

 Selecting the appropriate relationships and contract approaches for

each type of
purchased goods or outsourced service
 Preparing RFQs and RFPs and evaluating partnership opportunities
 Evaluating RFQs, RFPs, and partnerships
 Awarding and signing contracts
 Managing quality, timely performance, and contract changes
 Closing contracts

Depending on the complexity level of the project, each of these steps can take
either hours
or sometimes weeks of work to complete. Each of these steps is also included in
the project
master schedule. The time involved in the procurement cycle can influence the
scheduling
of critical activities, including the decision to self-perform the work or
contract the work to
others. The equipment and materials deliveries and completion of contracted
work dates
are placed on the project schedule and any procurement activities that create a
project
delay or fall on the project critical path may require special attention.

Selecting the Contract Approach

The technical teams typically develop a description of the work that will be
outsourced.
From this information, the project management team answers the following
questions:

 Is the required work or materials a commodity, customized product or

service, or
unique skill or relationship?
 What type of relationship is needed: supplier, vendor, or partnership?

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 How should the supplier, vendor, or potential partner be approached:
RFQ, RFP, or
personal contact?
 How well known is the scope of work?
 What are the risks and which party should assume which types of risk?
 Does the procurement of the service or goods affect activities on the
project
schedule’s critical path and how much float is there on those activities?
 How important is it to be sure of the cost in advance?

The procurement team uses the answers to the first three questions listed above
to
determine the approach to obtaining the goods or services and the remaining
questions to
determine what type of contract is most appropriate.

A key factor in selecting the contract approach is determining which party will
take the
most risk. The team determines the level of risk that will be managed by the
project and
what risks will be transferred to the contractor. Typically, the project
management team
wants to manage the project risk, but in some cases, contractors have more
expertise or
control that enable them to be better positioned to manage the risk associated
with the
contracted work.

Weather Risk on Concrete Contract

On a construction contract, the concrete supplier will not be penalized for
schedule delays
caused by weather because the project team has more options for making up
weather
delays than the concrete supplier. The risk associated with weather remains
with the
project and not transferred through the contract.

The contractor knows more about the risks associated with obtaining the raw
materials
used to make concrete and assumes the risk of delays caused by shortages of
those
materials.

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Soliciting Bids
A solicitation is the process of requesting a price and supporting information from
bidders.
The solicitation usually takes the form of either a request for quote (RFQ) or a
request for
proposal (RFP). Partnerships are pursued and established on a case-by-case basis by
senior
management.

Qualifying Bidders

Potential bidders are people or organizations capable of providing the materials or

performing the work required for the project. On smaller, less complex projects,
the parent
company typically has a list of suppliers and vendors that have successfully
provided goods
and services in the past, and the project has access to the performance record of
companies
on that list. On unique projects, where no suppliers lists exist, the project team
develops a
list of potential suppliers and then qualifies them to become eligible to bid on
project work.
Eligible bidders are placed on the bidders list and provided with a schedule of
when work
on the project will be bid.

The eligibility of a supplier is determined by the ability to perform the work in a

way that
meets project requirements and demonstrates financial stability. Ability to perform
the
work includes the ability to meet quality specifications and meet the project
schedule.
During times when economic activity is high in a region, many suppliers become busy
and
stretch their resources. The project team investigates the potential suppliers to
assure they
have the capacity and the track record of meeting deadlines before they are
included on the
bidder’s list.

The potential supplier must also be financially stable to be included on the

bidders list. A
credit check or a financial report from Dun and Bradstreet (D&B)—a provider of
financial

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 information about individual companies—will provide the project with
information about
the potential bidder’s financial status. D&B services include the following:

 D&B proprietary rankings and predictive creditworthiness scores

 Public filings, including suits, liens, judgments, and UCC filings—
standardized
financial disclosure documents that conform to the uniform commercial code
 Comprehensive payment history, including D&B’s Paydex Scores
 Company financial statements and history

Request for Quote

A request for quote focuses on price. The type of materials or service is well
defined and
can be obtained from several sources. The bidder that can meet the project
quality and
schedule requirements usually wins the contract by quoting the lowest price.

Request for Proposal

A request for a proposal accounts for price but focuses on meeting the project
quality or
schedule requirements. The process of developing a proposal in response to an
RFP can be
very expensive for the bidder, and the project team should not issue an RFP to
a company
that is not eligible to win the bid.

Evaluating Bids

Evaluation of bids in response to RFQs for commodity items and services is

heavily graded
for price. In most cases, the lowest total price will win the contract. The
total price will
include the costs of the goods or services, any shipping or delivery costs, the
value of any
warranties, and any additional service that adds value to the project.

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The evaluation of bids based on RFPs is more complex. The evaluation of proposals
includes the price and also an evaluation of the technical approach chosen by the
bidder.
The project team evaluating the proposal must include people with the expertise to
understand the technical aspects of the various proposal options and the value of
each
proposal to the project. On more complex projects, the administrative part of the
proposal
is evaluated and scored by one team, and the technical aspect of the proposal is
evaluated
by another team. The project team combines the two scores to determine the best
proposal
for the project.

Awarding the Contract

After the project team has selected the bidder that provides the best value to the
project, a
project representative validates all conditions of the bid and the contract with
the potential
contractor. Less complex awards, like contracts for building materials, require a
reading
and signing of the contract to assure the building materials supplier understands
the
contract terms and requirements of the project schedule. More complex projects
require a
detailed discussion of the goals, the potential barriers to accomplishing those
goals, the
project schedule and critical dates for the contract to make, and the processes for
resolving
conflicts and improving work processes.

Planning Session Follows Contract Award

On a design and construction project to build a major industrial plant in the
Chicago area,
the project invited two critical partners to a three-day planning session after the
project
contracts were awarded.

The project manager began the session by stating that the project leadership
intended to
create an environment that enabled each of the partners to exceed profit
expectations on
the project and that the only way to accomplish this goal was through a mutually
supportive team where everyone contributed to improve project performance and

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everyone benefited from better performance. The session then focused on developing
ways
to resolve problems and increase performance. Although this may appear to be a
simple
process of focusing contractors on project success, the process took several days
of lengthy
discussion and conflict resolution. The effort invested in developing alignment
between the
project team and contractors can significantly improve project performance.

Managing the Contracts

The contract type determines the level of effort and the skills needed to manage
the
contract. The manager of supplier contracts develops detailed specifications and
assures
compliance to these specifications. The manager of vendor contracts assures the
contractors that bid the work have the skills and capacity to accomplish the work
according
to the project schedule and tracks the vendor’s performance against the project
needs,
supplying support and direction when needed. The manager of partnering arrangements
develops alignment around common goals and work processes. Each of these approaches
requires different skills and various degrees of effort.

Items that take a long time to acquire—long lead items—receive early attention by

the
project leadership. Examples of long lead items are equipment that is designed and
built
specifically for the project, curriculum that is created for training a new
workforce, and a
customized bioreactor for a biotech project. These items might require weeks,
months, and
sometimes years to develop and deliver to the project site. Long lead items that
are
procured through the normal procurement cycle may cause delays in the project, and
the
project team identifies these items early to begin the procurement activities as
soon as
possible.

After the contract is awarded, the project team tracks the performance of the
contractor
against performance criteria in the contract and his contribution to the
performance of the
project. Typically, the contractors deliver the product or service that meets the
quality

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expectations and supports the project schedule. Typically, there are also one or
two
contractors that do not perform to project expectations. Some project managers will
then
pull out the contract and attempt to persuade the contractor to improve performance
or be
penalized. Other project managers will explore with the contractor creative ways to
improve performance and meet project requirements. The contract management allows
for
both approaches to deal with nonperforming contractors and the project team must
assess
what method is most likely to work in each situation.

Building Support with Vendor on Chemical Plant

Project
Eastman Chemical was building a new plant at their Kingsport, Tennessee location
when a
critical vendor began falling behind schedule. The project team analyzed the
situation and
determined the vendor had taken on more work than it was capable of completing by
the
project’s required due dates. This was an important vendor to the project and any
delay in
delivery from the vendor meant a delay in the completion of the project.

The project manager and Eastman executives flew to the vendor’s plant in New Jersey
and
brought a large bar graph of the project schedule. The discussion focused on the
critical
project dates and the importance of the equipment delivery dates. Eastman offered
technical support to the team and resources from the project to expedite the
delivery.
During lunch, Eastman executives and managers from the project walked with the
plant
manager around the plant floor, talking with the skilled labor working on the
equipment.
Eastman managers left Eastman hats and other small gifts as tokens of appreciation
for
their effort in supporting the Eastman project.

The effort by the Eastman project team to improve the vendor’s schedule performance
was
successful. The vendor was able to make critical dates and the project completed on
time.

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Managing contractor performance on a project is as important to the overall project
outcomes as the work performed by the project team.

Logistics and Expediting

Equipment and materials that are purchased for use on the project must be
transported,
inventoried, warehoused, and often secured. This area of expertise is
called logistics. The
logistics for the project can be managed by the project team or can be included in
the RFP
or RFQ. On international projects, materials may be imported, and the procurement
team
manages the customs process. On smaller projects, the logistical function is often
provided
by the parent company. On larger projects, these activities are typically
contracted to
companies that specialize in logistical services. On larger, more complex projects,
that
procurement team will include logistical expertise.
The project work often depends on materials procured for the project. The delivery
of
these materials influences the scheduling of the project, and often some materials
are
needed earlier than normal procurement practices would deliver. On long lead items,
the
project schedule is included in the contracting plans and contractors must explain
how
they will support the project schedule.

On large, complex projects, critical items might be scheduled for delivery after
they are
needed on the project. The procurement team then explores ideas with the contractor
to expedite—speed up—the manufacturing or transportation of the equipment or
materials. The contract can often place a priority on the fabrication of the
equipment and
delivery of the equipment to meet the project schedule. The project logistics team
can also
explore ways of shortening the transportation time. For example, a project in
Argentina
flew some critical equipment from Sweden rather than transport the equipment by
ship to
save several weeks in transit. The logistics costs were higher, but the overall
value to the
project was greater.

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 KEY TAKEAWAYS
 The procurement plan includes determining the category of materials or
services,
choosing the type of contractual relationship, soliciting bids, selecting
bidders,
managing the work, and closing the contracts.
 The decisions made when selecting the type of contract are based on whether
the
materials can be provided by suppliers, vendors, or partners; how well defined
the
work is; how the risk will be shared; the importance of the task to the
schedule; and
the need for certainty of the cost.
 Companies that bid on contracts are evaluated on past performance and
current
financial status. RFQs and RFPs are sent to those companies. RFQs are
evaluated on
price and RFPs are evaluated on price and method.
 Long lead time items are identified and monitored. Items that are critical
to the
schedule or delayed are assigned to an expediter. The logistics of handling
delivery,
storage, and transportation are determined. Work and materials are inspected
for
quality.

EXERCISES
1. Materials that are widely available with standardized quality are
____________,
which are provided by ______________.
2. The financial soundness of a vendor can be measured by the ratings provided
by
__________ (company name).
3. If an item takes a long time to deliver or if it is an important item, an
_________
might be assigned to be sure it is delivered on time.

Internalize your learning experience by preparing to discuss the following.

Assume that you are managing a project to replace the heating and cooling
system in
an old building and you would like to consider alternatives that are more
environmentally sustainable in addition to the typical systems. How would you
go

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 about it? Describe what type of relationship you think you need, what type of
contract
you would choose, and how you would identify and select a provider.

12.5 Project Closure
LEARNING OBJECTIVES
1. Describe the procedures for closing out contracts.
2. Describe the elements and purpose of the postproject review process.
3. Identify the types of documents that should be archived.
4. Identify the objectives of the project closeout celebration.

Team members who were excited by the project in its early stages may find it
difficult to
maintain their focus to complete the project. They might already be looking forward
to the
next project. Bringing a project to an end requires a different management style
that
focuses on details as well as an analysis of the decisions that were made.

Closeout Procurement Contracts

The last stage of the project procurement cycle includes the payment of the bills
and
closing of procurement contracts.

Contracts with Suppliers

Suppliers provide commodities that should meet standards of quality. The project
team
must check the records of deliveries made and determine that they were acceptable
quality. If any items were rejected for poor quality or not delivered, the final
payment is
adjusted accordingly.

Punch Lists and Performance Tests

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If a vendor is providing a service or building something for the project, there are
usually
items that must be fixed or mistakes that must be corrected before the contract is
complete.
On a software project, performance tests are run on the software, usually by the
people
who will be using the software, and any performance expectations not met are noted.
Sometimes the expectations were not captured in the project scope of work and
sometimes
the performance did not meet the expectations established in the scope. If the
items were
not in the scope of work and the owner wants the work done, then the owner
typically
issues a change order. If the expectations were in the scope of work, the
contractor is still
responsible for completing the work.

On a project to build a new house, the owner might go through the house looking for
minor
items not completed by the contractor. Before the contract is closed, any minor
items that
need to be repaired or completed are placed on a punch list, which is a list of all
the items
found by the owner that still remain to be done. The project team will then work on
all of
the items on the list, building a small schedule to complete the remaining work.

If the number of items on the punch list is too large or the amount of work is
significant, the
project team continues to work the project. Once the punch list becomes smaller,
the
project manager begins closing down the project, maintaining only enough staff and
equipment to support the team that is working the punch list.

Transfer to Customer or Sponsor

If the product of the project is a building, software system, or something that

must be
operated and maintained by someone else, it must be turned over to the people who
will be
responsible for it after the project is complete. They might perform their own
inspection to
determine if the project team has met its goals for quality and that all elements
of the

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project are complete. These performance tests are typically identified in the
original
project contract.

Final Payments

The final payment is usually more than a simple percentage of the work that remains
to be
completed. Completing the project might involve fixing the most difficult problems
that are
disproportionately expensive to solve, so the final payment should be large enough
to
motivate the vendor to give the project a high priority so that the project can be
completed
on time.

If the supplier has met all the contractual obligations, including fixing problems
and making
repairs as noted on a punch list, the project team signs off on the contract and
submits it to
the accounting department for final payment. The supplier is notified that the last
payment
is final and completes the contractual agreement between the supplier and the
project.

Overtime Needed to Complete Project and Earn

Final Payment
The building automation vendor devoted additional personnel and paid them overtime
wages to troubleshoot the problems and get them resolved so the building could open
on
time. When the project team was satisfied, they approved the system and the final
payment.

Postproject Evaluations
Before the team is dissolved and begins to focus on the next project, a review is
conducted
to capture the lessons that can be learned from this project, often called a
lessons learned
meeting or document. The team explores what went well and captures the processes to
understand why they went well. The team asks if the process is transferable to
other

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projects. The team also explores what did not go well and what people learned from
the
experience. The process is not to find blame but to learn.

Quality management is a process of continuous improvement that includes learning

from
past projects and making changes to improve the next project. This process is
documented
as evidence that quality management practices are in use. Some organizations have
formal
processes for changing work processes and integrating the lessons learned from the
project so other projects can benefit. Some organizations are less formal in the
approach
and expect individuals to learn from the experience and take the experience to
their next
project and share what they learned with others in a very informal way.

Project Profile Evaluation

One of the first activities was to create a project profile to determine where the
challenges
were most likely to occur. If the Darnall-Preston Complexity Index (DPCI) was used,
each of
the complexity evaluations is reviewed and compared to actual events that occurred
during
the project. The team explores the changes in the complexity level during the life
of the
project and how the team managed the complexity during the life of the project.
Learning
from this exercise develops expertise that is useful in making the next project
profile. The
DPCI rating is adjusted, if necessary, for reference purposes on future projects.

Trust and Alignment Effectiveness

The project leadership reviews the effect of trust—or lack of trust—on the project
and the
effectiveness of alignment meetings at building trust. The team determines which
problems
might have been foreseen and mitigated and which ones could not have been
reasonably
predicted. What were the cues that were missed by the team that indicated a problem
was
emerging? What could the team have done to better predict and prevent trust issues?

Schedule Management

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The original schedule of activities and the network diagram are compared to the
actual
schedule of events. Events that caused changes to the schedule are reviewed to see
how the
use of contingency reserves and float mitigated the disruption caused by those
events. The
original estimates of contingency time are reviewed to determine if they were
adequate
and the estimates of duration and float were accurate. These activities are
necessary for the
project team to develop expertise in estimating schedule elements in future
projects—they
are not used to place blame.

Budget Management

A review of budget estimates for the cost of work scheduled is compared to the
actual costs.
If the estimates are frequently different from the actual costs, the choice of
estimating
method is reviewed.

Risk Mitigation

After the project is finished, the estimates of risk can be reviewed and compared
to the
events that actually took place. Did events take place on the project that were
unforeseen?
What cues existed that may have allowed the team to predict these events? Was the
project
contingency sufficient to cover unforeseen risks? Even if nothing went wrong on
this
project, it is not proof that risk mitigation was a waste of money, but it is
useful to compare
the cost of avoiding risk versus the cost of unexpected events to understand how
much it
cost to avoid risk.

Procurement Contracts

The performance of suppliers and vendors is reviewed to determine if they should

still be
included in the list of qualified suppliers or vendors. The choice of contract for
each is

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reviewed to determine if the decision to share risk was justified and if the choice
of
incentives worked.

Customer Satisfaction

Relationships with the client are reviewed and decisions about including the client
in
project decisions and alignment meetings are discussed. The client is given the
opportunity
to express satisfaction and identify areas in which to improve. Often a senior
manager from
the organization interviews the client to develop feedback on the project team
performance.

Reports
The results of the postproject evaluations are summarized in reports for external
and
internal use.

Stakeholders

A general report that provides an overview of the project is created to provide

stakeholders with a summary of the project. The report includes the original goals
and
objectives and statements that show how the project met those goals and objectives.
Performance on the schedule and budget are summarized and an assessment of client
satisfaction is provided. A version of this report can be provided to the client as
a
stakeholder and as another means for deriving feedback.

Senior Management

The report to senior management contains all the information provided to the
stakeholders
in a short executive summary. The report identifies practices and processes that
could be
improved or lessons that were learned that could be useful on future projects.

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 Document Archival

The documents associated with the project must be stored in a safe location
where they can
be retrieved for future reference. Signed contracts or other documents that
might be used
in tax reviews or lawsuits must be stored. Organizations will have legal
document storage
and retrieval policies that apply to project documents and must be followed.
Some project
documents can be stored electronically.

Care should be taken to store documents in a form that can be recovered easily.
If the
documents are stored electronically, standard naming conventions should be used
so
documents can be sorted and grouped by name. If documents are stored in paper
form, the
expiration date of the documents should be determined so they can be destroyed
at some
point in the future. The following are documents that are typically archived:

 Charter documents
 Scope statement
 Original budget
 Change documents
 DPCI ratings
 Manager’s summary—lessons learned
 Final DPCI rating

Project Celebration

A symbolic ending of a project can be a final celebration to mark the end of

the project and
perhaps the dissolution of the team. The end of a major project is often a time
to reflect.
Project team members and stakeholders have typically invested a great deal of
time and
emotional energy into the success of the project. Because of this investment
and because of

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the close relationships that develop during a project, project closure in often
sad. Project
managers stay tuned into the project team environment and use celebrations and team
recognition to ameliorate the effects of project closure.

This is an opportunity to improve client satisfaction and team member satisfaction.

Awards
or recognition plaques might be given out to individuals who made an outstanding
contribution to the project. Celebrating and reviewing the challenges and successes
of the
project creates a positive memory of the project and reinforces the learning that
can be
transferred to future projects. Groups or teams can be recognized and instances
where
trust between team members made a positive difference can be rewarded.

The client can be praised for contributions during planning and execution of the
project.

KEY TAKEAWAYS
 To close contracts, systems are tested, materials are inspected, and punch
lists of
work to be completed are made.
 The purpose of the postproject review is to examine decisions that were
made with
partial knowledge with the way the project actually developed to learn from the
experience and to improve future decisions. It is also used to identify
processes that
can be improved.
 Original project documents, such as the charter, scope statement, and
budget, are
stored. Documents developed during the project, such as change agreements, are
stored. Postproject reviews, including a summary of lessons learned and a final
project
profile description—DPCI rating—are saved.
 At the project closeout celebration, positive behavior is awarded for
individuals,
and groups and the client or sponsor is invited to speak to enforce a sense of
satisfaction.

EXERCISES

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1. Why is a postproject review valuable to future projects?
2. Which documents should be archived?
3. Why should the project have a closeout celebration?

Internalize your learning experience by preparing to discuss the following.

Consider why it would be important to withhold a significant amount for the

final
payment. If you are familiar with a situation where a contractor had to spend
extra to
fix or finish items to complete a job, describe why they might need a
financial
incentive to get those jobs done.

12.6 Exercises
Exercises at the end of the chapter are designed to strengthen your understanding
and
retention of the information recently acquired in the chapter.

ESSAY QUESTIONS
Write several paragraphs to provide more in-depth analysis and consideration
when
answering the following questions.

1. Describe an activity that would require an RFP and why it should be handled
with
an RFP instead of a RFQ or a partnership.
2. Describe a procurement task. Rate it for the amount of uncertainty of the
scope,
cost, schedule, and risk. Choose a contract type and explain why that contract
type
would be an appropriate choice for that set of uncertainties.
3. Describe requirements of a particular quality method, and describe how a
postproject review would meet that standard.

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 DISCUSSION
The exercises in this section are designed to promote exchange of information
among
students in the classroom or in an online discussion. The exercises are more
open
ended, which means that what you find might be completely different from what
your
classmates find, and you can all benefit by sharing what you have learned.

1. Research the document retention standards at an organization of your choice

that
apply to normal business records. Describe how those standards would or would
not
meet the needs of project document archival. Be prepared to compare the
standards
of the organization you described with those described by your classmates.
2. Describe a situation with which you are familiar where conflicts arose over
completion of punch list items or fixing items to complete a project.

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