Project ManagementProcesses, Methodologies, and Econ.docx

Project Management
Processes, Methodologies, and Economics
Third Edition
Avraham Shtub
Faculty of Industrial Engineering and Management
The Technion–Israel Institute of Technology
Moshe Rosenwein
Department of Industrial Engineering and Operations Research
Columbia University
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Library of Congress Cataloging-in-Publication Data
Names: Shtub, Avraham, author. | Rosenwein, Moshe, author.
Title: Project management : processes, methodologies, and
economics /
Avraham Shtub, Faculty of Industrial Engineering and
Management, The
Technion-Israel Institute of Technology, Moshe Rosenwein,
Department of
Industrial Engineering and Operations Research, Columbia
University.
Other titles: Project management (Boston, Mass.)
Description: 3E. | Pearson | Includes bibliographical references
and index.
Identifiers: LCCN 2016030485 | ISBN 9780134478661 (pbk.)
Subjects: LCSH: Engineering—Management. | Project
management.
Classification: LCC TA190 .S583 2017 | DDC 658.4/04—dc23
LC record
available at https://lccn.loc.gov/2016030485
10 9 8 7 6 5 4 3 2 1
http://www.pearsoned.com/permissions/
https://lccn.loc.gov/2016030485
ISBN-10: 0-13-447866-5
ISBN-13: 978-0-13-447866-1

This book is dedicated to my grandchildren Zoey, Danielle,
Adam, and Noam
Shtub.
This book is dedicated to my wife, Debbie; my three children,
David,
Hannah, and Benjamin; my late parents, Zvi and Blanche
Rosenwein; and my
in-laws, Dr. Herman and Irma Kaplan.
Contents
1. Nomenclature xv
2. Preface xvii
3. What’s New in this Edition xxi
4. About the Authors xxiii
1. 1 Introduction 1
1. 1.1 Nature of Project Management 1
2. 1.2 Relationship Between Projects and Other Production
Systems 2
3. 1.3 Characteristics of Projects 4
1. 1.3.1 Definitions and Issues 5
2. 1.3.2 Risk and Uncertainty 7

3. 1.3.3 Phases of a Project 9
4. 1.3.4 Organizing for a Project 11
4. 1.4 Project Manager 14
1. 1.4.1 Basic Functions 15
2. 1.4.2 Characteristics of Effective Project Managers 16
5. 1.5 Components, Concepts, and Terminology 16
6. 1.6 Movement to Project-Based Work 24
7. 1.7 Life Cycle of a Project: Strategic and Tactical Issues 26
8. 1.8 Factors that Affect the Success of a Project 29
9. 1.9 About the book: Purpose and Structure 31
1. Team Project 35
2. Discussion Questions 38
3. Exercises 39
4. Bibliography 41
5. Appendix 1A: Engineering Versus Management 43
6. 1A.1 Nature of Management 43
7. 1A.2 Differences between Engineering and Management 43

8. 1A.3 Transition from Engineer to Manager 45
9. Additional References 45
2. 2 Process Approach to Project Management 47
1. 2.1 Introduction 47
1. 2.1.1 Life-Cycle Models 48
2. 2.1.2 Example of a Project Life Cycle 51
3. 2.1.3 Application of the Waterfall Model for Software
Development 51
2. 2.2 Project Management Processes 53
1. 2.2.1 Process Design 53
2. 2.2.2 PMBOK and Processes in the Project Life Cycle 54
3. 2.3 Project Integration Management 54
1. 2.3.1 Accompanying Processes 54
2. 2.3.2 Description 56
4. 2.4 Project Scope Management 60

5. 2.5 Project Time Management 61
6. 2.6 Project Cost Management 63
7. 2.7 Project Quality Management 64
8. 2.8 Project Human Resource Management 66
9. 2.9 Project Communications Management 67
10. 2.10 Project Risk Management 69

11. 2.11 Project Procurement Management 71
12. 2.12 Project Stakeholders Management 74
13. 2.13 The Learning Organization and Continuous
Improvement 76
1. 2.13.1 Individual and Organizational Learning 76
2. 2.13.2 Workflow and Process Design as the Basis of
Learning 76
1. Team Project 77
3. Exercises 78
4. Bibliography 78
3. 3 Engineering Economic Analysis 81
1. 3.1.1 Need for Economic Analysis 82

2. 3.1.2 Time Value of Money 82
3. 3.1.3 Discount Rate, Interest Rate, and Minimum Acceptable
Rate of Return 83
2. 3.2 Compound Interest Formulas 84
1. 3.2.1 Present Worth, Future Worth, Uniform Series, and
Gradient Series 86
2. 3.2.2 Nominal and Effective Interest Rates 89
3. 3.2.3 Inflation 90
4. 3.2.4 Treatment of Risk 92
3. 3.3 Comparison of Alternatives 92
1. 3.3.1 Defining Investment Alternatives 94
2. 3.3.2 Steps in the Analysis 96
4. 3.4 Equivalent Worth Methods 97
1. 3.4.1 Present Worth Method 97
2. 3.4.2 Annual Worth Method 98
3. 3.4.3 Future Worth Method 99
4. 3.4.4 Discussion of Present Worth, Annual Worth and Future
Worth Methods 101
5. 3.4.5 Internal Rate of Return Method 102

6. 3.4.6 Payback Period Method 109
5. 3.5 Sensitivity and Breakeven Analysis 111
6. 3.6 Effect of Tax and Depreciation on Investment Decisions
114
1. 3.6.1 Capital Expansion Decision 116
2. 3.6.2 Replacement Decision 118
3. 3.6.3 Make-or-Buy Decision 123
4. 3.6.4 Lease-or-Buy Decision 124
7. 3.7 Utility Theory 125
1. 3.7.1 Expected Utility Maximization 126
2. 3.7.2 Bernoulli’s Principle 128
3. 3.7.3 Constructing the Utility Function 129
4. 3.7.4 Evaluating Alternatives 133
5. 3.7.5 Characteristics of the Utility Function 135
1. Team Project 137
3. Exercises 142

4. Bibliography 152
4. 4 Life-Cycle Costing 155
1. 4.1 Need for Life-Cycle Cost Analysis 155
2. 4.2 Uncertainties in Life-Cycle Cost Models 158
3. 4.3 Classification of Cost Components 161
4. 4.4 Developing the LCC Model 168
5. 4.5 Using the Life-Cycle Cost Model 175
1. Team Project 176
3. Exercises 177
4. Bibliography 179
5. 5 Portfolio Management—Project Screening and Selection
181
1. 5.1 Components of the Evaluation Process 181
2. 5.2 Dynamics of Project Selection 183
3. 5.3 Checklists and Scoring Models 184
4. 5.4 Benefit-Cost Analysis 187
1. 5.4.1 Step-By-Step Approach 193

2. 5.4.2 Using the Methodology 193
3. 5.4.3 Classes of Benefits and Costs 193
4. 5.4.4 Shortcomings of the Benefit-Cost Methodology 194
5. 5.5 Cost-Effectiveness Analysis 195
6. 5.6 Issues Related to Risk 198
1. 5.6.1 Accepting and Managing Risk 200
2. 5.6.2 Coping with Uncertainty 201
3. 5.6.3 Non-Probabilistic Evaluation Methods when
Uncertainty Is Present 202
4. 5.6.4 Risk-Benefit Analysis 207
5. 5.6.5 Limits of Risk Analysis 210
7. 5.7 Decision Trees 210
1. 5.7.1 Decision Tree Steps 217
2. 5.7.2 Basic Principles of Diagramming 218
3. 5.7.3 Use of Statistics to Determine the Value of More
Information 219
4. 5.7.4 Discussion and Assessment 222
8. 5.8 Real Options 223

1. 5.8.1 Drivers of Value 223
2. 5.8.2 Relationship to Portfolio Management 224
1. Team Project 225
3. Exercises 229
4. Bibliography 237
5. Appendix 5A: Bayes’ Theorem for Discrete Outcomes 239
6. 6 Multiple-Criteria Methods for Evaluation and Group
Decision
Making 241
2. 6.2 Framework for Evaluation and Selection 242
1. 6.2.1 Objectives and Attributes 242
2. 6.2.2 Aggregating Objectives Into a Value Model 244
3. 6.3 Multiattribute Utility Theory 244
1. 6.3.1 Violations of Multiattribute Utility Theory 249
4. 6.4 Analytic Hierarchy Process 254
1. 6.4.1 Determining Local Priorities 255

2. 6.4.2 Checking for Consistency 260
3. 6.4.3 Determining Global Priorities 261
5. 6.5 Group Decision Making 262
1. 6.5.1 Group Composition 263
2. 6.5.2 Running the Decision-Making Session 264
3. 6.5.3 Implementing the Results 265
4. 6.5.4 Group Decision Support Systems 265
1. Team Project 267
3. Exercises 268
4. Bibliography 271
5. Appendix 6A: Comparison of Multiattribute Utility Theory
with
the AHP: Case Study 275
6. 6A.1 Introduction and Background 275
7. 6A.2 The Cargo Handling Problem 276
1. 6A.2.1 System Objectives 276
2. 6A.2.2 Possibility of Commercial Procurement 277
3. 6A.2.3 Alternative Approaches 277

8. 6A.3 Analytic Hierarchy Process 279
1. 6A.3.1 Definition of Attributes 280
2. 6A.3.2 Analytic Hierarchy Process Computations 281
3. 6A.3.3 Data Collection and Results for AHP 283
4. 6A.3.4 Discussion of Analytic Hierarchy Process and Results
284
9. 6A.4 Multiattribute Utility Theory 286
1. 6A.4.1 Data Collection and Results for Multiattribute Utility
Theory 286
2. 6A.4.2 Discussion of Multiattribute Utility Theory and
Results 290
10. 6A.5 Additional Observations 290
11. 6A.6 Conclusions for the Case Study 291
12. References 291
7. 7 Scope and Organizational Structure of a Project 293
2. 7.2 Organizational Structures 294
1. 7.2.1 Functional Organization 295

2. 7.2.2 Project Organization 297
3. 7.2.3 Product Organization 298
4. 7.2.4 Customer Organization 298
5. 7.2.5 Territorial Organization 299
6. 7.2.6 The Matrix Organization 299
7. 7.2.7 Criteria for Selecting an Organizational Structure 302
3. 7.3 Organizational Breakdown Structure of Projects 303
1. 7.3.1 Factors in Selecting a Structure 304
2. 7.3.2 The Project Manager 305
3. 7.3.3 Project Office 309
4. 7.4 Project Scope 312
1. 7.4.1 Work Breakdown Structure 313
2. 7.4.2 Work Package Design 320
5. 7.5 Combining the Organizational and Work Breakdown
Structures
322
1. 7.5.1 Linear Responsibility Chart 323
6. 7.6 Management of Human Resources 324

1. 7.6.1 Developing and Managing the Team 325
2. 7.6.2 Encouraging Creativity and Innovation 329
3. 7.6.3 Leadership, Authority, and Responsibility 331
4. 7.6.4 Ethical and Legal Aspects of Project Management 334
1. Team Project 335
3. Exercises 336
4. Bibliography 338
8. 8 Management of Product, Process, and Support Design 341
1. 8.1 Design of Products, Services, and Systems 341
1. 8.1.1 Principles of Good Design 342
2. 8.1.2 Management of Technology and Design in Projects 344
2. 8.2 Project Manager’s Role 345
3. 8.3 Importance of Time and the Use of Teams 346
1. 8.3.1 Concurrent Engineering and Time-Based Competition
347
2. 8.3.2 Time Management 349
3. 8.3.3 Guideposts for Success 352

4. 8.3.4 Industrial Experience 354
5. 8.3.5 Unresolved Issues 355
4. 8.4 Supporting Tools 355
1. 8.4.1 Quality Function Deployment 355
2. 8.4.2 Configuration Selection 358
3. 8.4.3 Configuration Management 361
4. 8.4.4 Risk Management 365
5. 8.5 Quality Management 370
1. 8.5.1 Philosophy and Methods 371
2. 8.5.2 Importance of Quality in Design 382
3. 8.5.3 Quality Planning 383
4. 8.5.4 Quality Assurance 383
5. 8.5.5 Quality Control 384
6. 8.5.6 Cost of Quality 385
1. Team Project 387
3. Exercises 389

4. Bibliography 389
9. 9 Project Scheduling 395
1. 9.1.1 Key Milestones 398
2. 9.1.2 Network Techniques 399
2. 9.2 Estimating the Duration of Project Activities 401
1. 9.2.1 Stochastic Approach 402
2. 9.2.2 Deterministic Approach 406
3. 9.2.3 Modular Technique 406
4. 9.2.4 Benchmark Job Technique 407
5. 9.2.5 Parametric Technique 407
3. 9.3 Effect of Learning 412
4. 9.4 Precedence Relations Among Activities 414
5. 9.5 Gantt Chart 416
6. 9.6 Activity-On-Arrow Network Approach for CPM Analysis
420
1. 9.6.1 Calculating Event Times and Critical Path 428

2. 9.6.2 Calculating Activity Start and Finish Times 431
3. 9.6.3 Calculating Slacks 432
7. 9.7 Activity-On-Node Network Approach for CPM Analysis
433
1. 9.7.1 Calculating Early Start and Early Finish Times of
Activities 434
2. 9.7.2 Calculating Late Start and Late Finish Times of
Activities 434
8. 9.8 Precedence Diagramming with Lead–Lag Relationships
436
9. 9.9 Linear Programming Approach for CPM Analysis 442
10. 9.10 Aggregating Activities in the Network 443
1. 9.10.1 Hammock Activities 443
2. 9.10.2 Milestones 444
11. 9.11 Dealing with Uncertainty 445
1. 9.11.1 Simulation Approach 445
2. 9.11.2 Pert and Extensions 447
12. 9.12 Critique of Pert and CPM Assumptions 454
13. 9.13 Critical Chain Process 455
14. 9.14 Scheduling Conflicts 457

1. Team Project 458
3. Exercises 460
4. Bibliography 467
5. Appendix 9A: Least-Squares Regression Analysis 471
6. Appendix 9B: Learning Curve Tables 473
7. Appendix 9C: Normal Distribution Function 476
10. 10 Resource Management 477
1. 10.1 Effect of Resources on Project Planning 477
2. 10.2 Classification of Resources Used in Projects 478
3. 10.3 Resource Leveling Subject to Project Due-Date
Constraints
481
4. 10.4 Resource Allocation Subject to Resource Availability
Constraints 487
5. 10.5 Priority Rules for Resource Allocation 491
6. 10.6 Critical Chain: Project Management by Constraints 496
7. 10.7 Mathematical Models for Resource Allocation 496
8. 10.8 Projects Performed in Parallel 499

1. Team Project 500
3. Exercises 501
4. Bibliography 506
11. 11 Project Budget 509
2. 11.2 Project Budget and Organizational Goals 511
3. 11.3 Preparing the Budget 513
1. 11.3.1 Top-Down Budgeting 514
2. 11.3.2 Bottom-Up Budgeting 514
3. 11.3.3 Iterative Budgeting 515
4. 11.4 Techniques for Managing the Project Budget 516
1. 11.4.1 Slack Management 516
2. 11.4.2 Crashing 520
5. 11.5 Presenting the Budget 527
6. 11.6 Project Execution: Consuming the Budget 529
7. 11.7 The Budgeting Process: Concluding Remarks 530

1. Team Project 531
3. Exercises 532
4. Bibliography 537
5. Appendix 11A: Time–Cost Tradeoff with Excel 539
12. 12 Project Control 545
2. 12.2 Common Forms of Project Control 548
3. 12.3 Integrating the OBS and WBS with Cost and Schedule
Control
551
1. 12.3.1 Hierarchical Structures 552
2. 12.3.2 Earned Value Approach 556
4. 12.4 Reporting Progress 565
5. 12.5 Updating Cost and Schedule Estimates 566
6. 12.6 Technological Control: Quality and Configuration 569
7. 12.7 Line of Balance 569
8. 12.8 Overhead Control 574

1. Team Project 576
3. Exercises 577
4. Bibliography 580
13. Appendix 12A: Example of a Work Breakdown Structure
581
14. Appendix 12B: Department of Energy Cost/Schedule
Control Systems
Criteria 583
15. 13 Research and Development Projects 587
2. 13.2 New Product Development 589
1. 13.2.1 Evaluation and Assessment of Innovations 589
2. 13.2.2 Changing Expectations 593
3. 13.2.3 Technology Leapfrogging 593
4. 13.2.4 Standards 594
5. 13.2.5 Cost and Time Overruns 595
3. 13.3 Managing Technology 595

1. 13.3.1 Classification of Technologies 596
2. 13.3.2 Exploiting Mature Technologies 597
3. 13.3.3 Relationship Between Technology and Projects 598
4. 13.4 Strategic R&D Planning 600
1. 13.4.1 Role of R&D Manager 600
2. 13.4.2 Planning Team 601
5. 13.5 Parallel Funding: Dealing with Uncertainty 603
1. 13.5.1 Categorizing Strategies 604
2. 13.5.2 Analytic Framework 605
3. 13.5.3 Q-Gert 606
6. 13.6 Managing the R&D Portfolio 607
1. 13.6.1 Evaluating an Ongoing Project 609
2. 13.6.2 Analytic Methodology 612
1. Team Project 617
3. Exercises 619
4. Bibliography 619

5. Appendix 13A: Portfolio Management Case Study 622
16. 14 Computer Support for Project Management 627
2. 14.2 Use of Computers in Project Management 628
1. 14.2.1 Supporting the Project Management Process Approach
629
2. 14.2.2 Tools and Techniques for Project Management 629
3. 14.3 Criteria for Software Selection 643
4. 14.4 Software Selection Process 648
5. 14.5 Software Implementation 650
6. 14.6 Project Management Software Vendors 656
1. Team Project 657
3. Exercises 658
4. Bibliography 659
5. Appendix 14A: PMI Software Evaluation Checklist 660
6. 14A.1 Category 1: Suites 660
7. 14A.2 Category 2: Process Management 660

8. 14A.3 Category 3: Schedule Management 661
9. 14A.4 Category 4: Cost Management 661
10. 14A.5 Category 5: Resource Management 661
11. 14A.6 Category 6: Communications Management 661
12. 14A.7 Category 7: Risk Management 662
13. 14A.8 General (Common) Criteria 662
14. 14A.9 Category-Specific Criteria Category 1: Suites 663
15. 14A.10 Category 2: Process Management 663
16. 14A.11 Category 3: Schedule Management 664
17. 14A.12 Category 4: Cost Management 665
18. 14A.13 Category 5: Resource Management 666
19. 14A.14 Category 6: Communications Management 666
20. 14A.15 Category 7: Risk Management 668
17. 15 Project Termination 671
2. 15.2 When to Terminate a Project 672
3. 15.3 Planning for Project Termination 677
4. 15.4 Implementing Project Termination 681

5. 15.5 Final Report 682
1. Team Project 683
3. Exercises 684
4. Bibliography 685
18. 16 New Frontiers in Teaching Project Management in
MBA and
Engineering Programs 687
2. 16.2 Motivation for Simulation-Based Training 687
3. 16.3 Specific Example—The Project Team Builder (PTB) 691
4. 16.4 The Global Network for Advanced Management
(GNAM)
MBA New Product Development (NPD) Course 692
5. 16.5 Project Management for Engineers at Columbia
University
693
6. 16.6 Experiments and Results 694
7. 16.7 The Use of Simulation-Based Training for Teaching
Project
Management in Europe 695

8. 16.8 Summary 696
1. Bibliography 697
1. Index 699
Nomenclature
AC annual cost
ACWP actual cost of work performed
AHP analytic hierarchy process
AOA activity on arrow
AON activity on node
AW annual worth
BAC budget at completion
B/C benefit/cost
BCWP budgeted cost of work performed
BCWS budgeted cost of work scheduled
CBS cost breakdown structure
CCB change control board
CCBM critical chain buffer management

CDR critical design review
CE certainty equivalent, concurrent engineering
C-E cost-effectiveness
CER cost estimating relationship
CI cost index; consistency index;
criticality index
CM configuration management
COO chief operating officer
CPIF cost plus incentive fee
CPM critical path method
CR capital recovery, consistency ratio
C/SCSC cost/schedule control systems criteria
CV cost variance
DOD Department of Defense
DOE Department of Energy
DOH direct overhead costs
DSS decision support system

EAC estimate at completion
ECO engineering change order
ECR engineering change request
EMV expected monetary value
EOM end of month
EOY end of year
ERP enterprise resource planning
ETC estimate to complete
ETMS early termination monitoring system
EUAC equivalent uniform annual cost
EV earned value
EVPI expected value of perfect information
EVSI expected value of sample information
FFP firm fixed price
FMS flexible manufacturing system
FPIF fixed price incentive fee
FW future worth

GAO General Accounting Office
GDSS group decision support system
GERT graphical evaluation and review technique
HR human resources
IPT integraded product team
IRR internal rate of return
IRS Internal Revenue Service
ISO International Standards Organization
IT information technology
LCC life-cycle cost
LOB line of balance
LOE level of effort
LP linear program
LRC linear responsibility chart
MACRS modified accelerated cost recovery system
MARR minimum acceptable (attractive) rate of return
MAUT multiattribute utility theory

MBO management by objectives
MIS management information system
MIT Massachusetts Institute of Technology
MPS master production schedule
MTBF mean time between failures
MTTR mean time to repair
NAC net annual cost
NASA National Aeronautics and Space Administration
NBC nuclear, biological, chemical
NPV net present value
OBS organizational breakdown structure
O&M operations and maintenance
PDMS product data management system
PDR preliminary design review
PERT program evaluation and review technique
PMBOK project management body of knowledge
PMI Project Management Institute

PMP project management professional
PO project office
PT project team
PV planned value
PW present worth
QA quality assurance
QFD quality function deployment
RAM reliability, availability, and maintainability; random
access
memory
R&D research and development
RDT&E research, development, testing, and evaluation
RFP request for proposal
ROR rate of return
SI schedule index
SOW statement of work
SOYD sum-of-the-years digits
SV schedule variance
TQM total quality management

WBS work breakdown structure
WP work package
WR work remaining
Preface
We all deal with projects in our daily lives. In most cases,
organization and
management simply amount to constructing a list of tasks and
executing them
in sequence, but when the information is limited or imprecise
and when
cause-and-effect relationships are uncertain, a more considered
approach is
called for. This is especially true when the stakes are high and
time is
pressing. Getting the job done right the first time is essential.
This means
doing the upfront work thoroughly, even at the cost of
lengthening the initial
phases of the project. Shaving expenses in the early stages with
the intent of
leaving time and money for revisions later might seem like a
good idea but
could have consequences of painful proportions. Seasoned
managers will tell
you that it is more cost-effective in the long run to add five
extra engineers at
the beginning of a project than to have to add 50 toward the
end.

The quality revolution in manufacturing has brought this point
home.
Companies in all areas of technology have come to learn that
quality cannot
be inspected into a product; it must be built in. Recalling the
1980s, the
global competitive battles of that time were won by companies
that could
achieve cost and quality advantages in existing, well-defined
markets. In the
1990s, these battles were won by companies that could build
and dominate
new markets. Today, the emphasis is partnering and better
coordination of the
supply chain. Planning is a critical component of this process
and is the
foundation of project management.
Projects may involve dozens of firms and hundreds of people
who need to be
managed and coordinated. They need to know what has to be
done, who is to
do it, when it should be done, how it will be done, and what
resources will be
used. Proper planning is the first step in communicating these
intentions. The
problem is made difficult by what can be characterized as an
atmosphere of
uncertainty, chaos, and conflicting goals. To ensure teamwork,
all major
participants and stakeholders should be involved at each stage
of the process.
How is this achieved efficiently, within budget, and on
schedule? The
primary objective in writing our first book was to answer this

question from
the perspective of the project manager. We did this by
identifying the
components of modern project management and showing how
they relate to
the basic phases of a project, starting with conceptual design
and advanced
development, and continuing through detailed design,
production, and
termination. Taking a practical approach, we drew on our
collective
experience in the electronics, information services, and
aerospace industries.
The purpose of the second edition was to update the
developments in the field
over the last 10 years and to expand on some of the concerns
that are
foremost in the minds of practitioners. In doing so, we have
incorporated new
material in many of the chapters specifically related to the
Project
Management Body of Knowledge (PMBOK) published by the
Project
Management Institute. This material reflects the tools,
techniques, and
processes that have gained widespread acceptance by the
profession because
of their proven value and usefulness.
Over the years, numerous books have been written with similar
objectives in
mind. We acknowledge their contribution and have endeavored
to build on

their strengths. As such in the third edition of the book, we have
focused on
integrative concepts rather than isolated methodologies. We
have relied on
simple models to convey ideas and have intentionally avoided
detailed
mathematical formulations and solution algorithms––aspects of
the field
better left to other parts of the curriculum. Nevertheless, we do
present some
models of a more technical nature and provide references for
readers who
wish to gain a deeper understanding of their use. The
availability of powerful,
commercial codes brings model solutions within reach of the
project team.
To ensure that project participants work toward the same end
and hold the
same expectations, short- and long-term goals must be
identified and
communicated continually. The project plan is the vehicle by
which this is
accomplished and, once approved, becomes the basis for
monitoring,
controlling, and evaluating progress at each phase of the
project’s life cycle.
To help the project manager in this effort, various software
packages have
been developed; the most common run interactively on
microcomputers and
have full functional and report-generating capabilities. In our
experience,
even the most timid users are able to take advantage of their
main features
after only a few hours of hands-on instruction.

A second objective in writing this book has been to fill a void
between texts
aimed at low- to mid-level managers and those aimed at
technical personnel
with strong analytic skills but little training in or exposure to
organizational
issues. Those who teach engineering or business students at
both the late
undergraduate and early graduate levels should find it suitable.
In addition,
the book is intended to serve as a reference for the practitioner
who is new to
the field or who would like to gain a surer footing in project
management
concepts and techniques.
The core material, including most of the underlying theory, can
be covered in
a one-semester course. At the end of Chapter 1, we outline the
book’s
contents. Chapter 3 deals with economic issues, such as cash
flow, time value
of money, and depreciation, as they relate to projects. With this
material and
some supplementary notes, coupled with the evaluation methods
and multiple
criteria decision-making techniques discussed in Chapters 5 and
6,
respectively, it should be possible to teach a combined course in
project
management and engineering economy. This is the direction in
which many
undergraduate engineering programs are now headed after many

years of
industry prodding. Young engineers are often thrust into
leadership roles
without adequate preparation or training in project management
skills.
Among the enhancements in the Third Edition is a section on
Lean project
management, discussed in Chapter 8, and a new Chapter 16 on
simulation-
based training for project management.
Lean project management is a Quality Management initiative
that focuses on
maximizing the value that a project generates for its
stakeholders while
minimizing waste. Lean project management is based on the
Toyota
production system philosophy originally developed for a
repetitive
environment and modified to a nonrepetitive environment to
support project
managers and project teams in launching, planning, executing,
and
terminating projects. Lean project management is all about
people—selecting
the right project team members, teaching them the art and
science of project
management, and developing a highly motivated team that
works together to
achieve project goals.
Simulation-based training is a great tool for training project
team members
and for team development. Chapter 16 discusses the principles
of simulation-

based training and its application to project management. The
chapter reports
on the authors’ experience in using simulation-based training in
leading
business schools, such as members of the Global Network for
Advanced
Management (GNAM), and in leading engineering schools, such
as the
Columbia University School of Engineering and the Technion.
The authors
also incorporated feedback received from European universities
such as
Technische Universität München (TUM) School of Management
and
Katholieke Universiteit Leuven that used the Project Team
Builder (PTB)
simulation-based training environment. Adopters of this book
are encouraged
to try the PTB—it is available from
http://www.sandboxmodel.com/—and to
integrate it into their courses.
Writing a textbook is a collaborative effort involving many
people whose
names do not always appear on the cover. In particular, we
thank all faculty
who adopted the first and second editions of the book and
provided us with
their constructive and informative comments over the years.
With regard to
production, much appreciation goes to Lillian Bluestein for her
thorough job
in proofreading and editing the manuscript. We would also like

to thank Chen
Gretz-Shmueli for her contribution to the discussion in the
human resources
section. Finally, we are forever grateful to the phalanx of
students who have
studied project management at our universities and who have
made the
painstaking efforts of gathering and writing new material all
worthwhile.
Avraham Shtub
Moshe Rosenwein
http://www.sandboxmodel.com/
What’s New in this Edition
The purpose of the new, third edition of this book is to update
developments
in the project management field over the last 10 years and to
more broadly
address some of the concerns that have increased in prominence
in the minds
of practitioners. We incorporated new material in many of the
chapters
specifically related to the Project Management Body of
Knowledge
(PMBOK) published by the Project Management Institute. This
material
reflects the tools, techniques, and processes that have gained
widespread
acceptance by the profession because of their proven value and
usefulness.
Noteworthy enhancements in the third edition include:

An expanded section regarding Lean project management in
Chapter 8;
A new chapter, Chapter 16, discussing the use of simulation and
the
Project Team Builder software;
A detailed discussion on activity splitting and its advantages
and
disadvantages in project management;
Descriptions, with examples, of resource-scheduling heuristics
such as
the longest-duration first heuristic and the Activity Time
(ACTIM)
algorithm;
Examples that demonstrate the use of Excel Solver to model
project
management problems such as the time–cost tradeoff;
A description of project management courses at Columbia
University
and the Global Network of Advanced Management.
About the Authors
Professor Avraham Shtub holds the Stephen and Sharon Seiden
Chair in
Project Management. He has a B.Sc. in Electrical Engineering
from the
Technion–Israel Institute of Technology (1974), an MBA from
Tel Aviv
University (1978), and a Ph.D. in Management Science and

Industrial
Engineering from the University of Washington (1982).
He is a certified Project Management Professional (PMP) and a
member of
the Project Management Institute (PMI-USA). He is the
recipient of the
Institute of Industrial Engineering 1995 Book of the Year
Award for his book
Project Management: Engineering, Technology, and
Implementation
(coauthored with Jonathan Bard and Shlomo Globerson),
Prentice Hall, 1994.
He is the recipient of the Production Operations Management
Society Wick
Skinner Teaching Innovation Achievements Award for his book
Enterprise
Resource Planning (ERP): The Dynamics of Operations
Management. His
books on Project Management were published in English,
Hebrew, Greek,
and Chinese.
He is the recipient of the 2008 Project Management Institute
Professional
Development Product of the Year Award for the training
simulator “Project
Team Builder – PTB.”
Professor Shtub was a Department Editor for IIE Transactions,
he was on the
Editorial Boards of the Project Management Journal, The
International
Journal of Project Management, IIE Transactions, and the
International
Journal of Production Research. He was a faculty member of the

department
of Industrial Engineering at Tel Aviv University from 1984 to
1998, where he
also served as a chairman of the department (1993–1996). He
joined the
Technion in 1998 and was the Associate Dean and head of the
MBA
program.
He has been a consultant to industry in the areas of project
management,
training by simulators, and the design of production—operation
systems. He
was invited to speak at special seminars on Project Management
and
Operations in Europe, the Far East, North America, South
America, and
Australia.
Professor Shtub visited and taught at Vanderbilt University, The
University
of Pennsylvania, Korean Institute of Technology, Bilkent
University in
Turkey, Otego University in New Zealand, Yale University,
Universitat
Politécnica de Valencia, and the University of Bergamo in Italy.
Dr. Moshe Rosenwein has a B.S.E. from Princeton University
and a Ph.D. in
Decision Sciences from the University of Pennsylvania. He has
worked in the
industry throughout his professional career, applying
management science

modeling and methodologies to business problems in supply
chain
optimization, network design, customer relationship
management, and
scheduling. He has served as an adjunct professor at Columbia
University on
multiple occasions over the past 20 years and developed a
project
management course for the School of Engineering that has been
taught since
2009. He has also taught at Seton Hall University and Rutgers
University.
Dr. Rosenwein has published over 20 refereed papers and has
delivered
numerous talks at universities and conferences. In 2001, he led
an industry
team that was awarded a semi-finalist in the Franz Edelman
competition for
the practice of management science.
Chapter 1 Introduction
1.1 Nature of Project Management
Many of the most difficult engineering and business challenges
of recent
decades have been to design, develop, and implement new
systems of a type
and complexity never before attempted. Examples include the
construction of
oil drilling platforms in the North Sea off the coast of Great
Britain, the
development of the manned space program in both the United
States and the
former Soviet Union, and the worldwide installation of fiber

optic lines for
broadband telecommunications. The creation of these systems
with
performance capabilities not previously available and within
acceptable
schedules and budgets has required the development of new
methods of
planning, organizing, and controlling events. This is the essence
of project
management.
A project is an organized endeavor aimed at accomplishing a
specific
nonroutine or low-volume task. Although projects are not
repetitive, they
may take significant amounts of time and, for our purposes, are
sufficiently
large or complex to be recognized and managed as separate
undertakings.
Teams have emerged as the way of supplying the needed talents.
The use of
teams complicates the flow of information and places additional
burdens on
management to communicate with and coordinate the activities
of the
participants.
The amount of time in which an individual or an organizational
unit is
involved in a project may vary considerably. Someone in
operations may
work only with other operations personnel on a project or may
work with a
team composed of specialists from various functional areas to
study and solve
a specific problem or to perform a secondary task.

Management of a project differs in several ways from
management of a
typical organization. The objective of a project team is to
accomplish its
prescribed mission and disband. Few firms are in business to
perform just one
job and then disappear. Because a project is intended to have a
finite life,
employees are seldom hired with the intent of building a career
with the
project. Instead, a team is pulled together on an ad-hoc basis
from among
people who normally have assignments in other parts of the
organization.
They may be asked to work full time on the project until its
completion; or
they may be asked to work only part time, such as two days a
week, on the
project and spend the rest of the time at their usual assignments.
A project
may involve a short-term task that lasts only a matter of days,
or it may run
for years. After completion, the team normally disperses and its
members
return to their original jobs.
The need to manage large, complex projects, constrained by
tight schedules
and budgets, motivated the development of methodologies
different from
those used to manage a typical enterprise. The increasingly
complex task of

managing large-scale, enterprise-wide projects has led to the
rise in
importance of the project management function and the role of
the project
manager or project management office. Project management is
increasingly
viewed in both industry and government as a critical role on a
project team
and has led to the development of project management as a
profession (much
like finance, marketing, or information technology, for
example). The Project
Management Institute (PMI), a nonprofit organization, is in the
forefront of
developing project management methodologies and of providing
educational
services in the form of workshops, training, and professional
literature.
1.2 Relationship Between Projects
and Other Production Systems
Operations and production management contains three major
classes of
systems: (1) those designed for mass production, (2) those
designed for batch
(or lot) production, and (3) those designed for undertaking
nonrepetitive
projects common to construction and new product development.
Each of
these classes may be found in both the manufacturing and
service sectors.
Mass production systems are typically designed around the
specific processes

used to assemble a product or perform a service. Their
orientation is fixed
and their applications are limited. Resources and facilities are
composed of
special-purpose equipment designed to perform the operations
required by
the product or the service in an efficient way. By laying out the
equipment to
parallel the natural routings, material handling and information
processing are
greatly simplified. Frequently, material handling is automated
and the use of
conveyors and monorails is extensive. The resulting system is
capital
intensive and very efficient in the processing of large quantities
of specific
products or services for which relatively little management and
control are
necessary. However, these systems are very difficult to alter
should a need
arise to produce new or modified products or to provide new
services. As a
result, they are most appropriate for operations that experience
a high rate of
demand (e.g., several hundred thousand units annually) as well
as high
aggregate demand (e.g., several million units throughout the life
cycle of the
system).
Batch-oriented systems are used when several products or
services are
processed in the same facility. When the demand rate is not
high enough or
when long-run expectations do not justify the investment in
special-purpose

equipment, an effort is made to design a more flexible system
on which a
variety of products or services can be processed. Because the
resources used
in such systems have to be adjusted (set up) when production
switches from
one product to another, jobs are typically scheduled in batches
to save setup
time. Flexibility is achieved by using general-purpose resources
that can be
adjusted to handle different processes. The complexity of
operations
planning, scheduling, and control is greater than in mass
production systems
as each product has its own routing (sequence of operations). To
simplify
planning, resources are frequently grouped together based on
the type of
processes that they perform. Thus, batch-oriented systems
contain
organizational units that specialize in a function or a process, as
opposed to
product lines that are found in mass production systems.
Departments such as
metal cutting, painting, testing, and packaging/shipping are
typical examples
from the batch-oriented manufacturing sector, whereas word
processing
centers and diagnostic laboratories are examples from the
service sector.
In the batch-oriented system, it is particularly important to pay
attention to

material handling needs because each product has its specific
set of
operations and routings. Material handling equipment, such as
forklifts, is
used to move in-process inventory between departments and
work centers.
The flexibility of batch-oriented systems makes them attractive
for many
organizations.
In recent years, flexible manufacturing systems have been quick
to gain
acceptance in some industrial settings. With the help of
microelectronics and
computer technology, these systems are designed to achieve
mass production
efficiencies in low-demand environments. They work by
reducing setup
times and automating material handling operations but are
extremely capital
intensive. Hence they cannot always be justified when product
demand is low
or when labor costs are minimal. Another approach is to take
advantage of
local economies of scale. Group technology cells, which are
based on
clustering similar products or components into families
processed by
dedicated resources of the facility, are one way to implement
this approach.
Higher utilization rates and greater throughput can be achieved
by processing
similar components on dedicated machines.
By way of contrast, systems that are subject to very low demand
(no more

than a few units) are substantially different from the first two
mentioned.
Because of the nonrepetitive nature of these systems, past
experience may be
of limited value so little learning takes place. In this
environment, extensive
management effort is required to plan, monitor, and control the
activities of
the organization. Project management is a direct outgrowth of
these efforts.
It is possible to classify organizations based on their production
orientation as
a function of volume and batch size. This is illustrated in Figure
1.1.
Figure 1.1
Classification of production systems.
Figure 1.1 Full Alternative Text
The borderlines between mass production, batch-oriented, and
project-
oriented systems are hard to define. In some organizations
where the project
approach has been adopted, several units of the same product (a
batch) are
produced, whereas other organizations use a batch-oriented
system that
produces small lots (the just-in-time approach) of very large
volumes of
products. To better understand the transition between the three
types of
systems, consider an electronics firm that assembles printed

circuit boards in
small batches in a job shop. As demand for the boards picks up,
a decision is
made to develop a flow line for assembly. The design and
implementation of
this new line is a project.
1.3 Characteristics of Projects
Although the Manhattan project—the development of the first
atomic bomb
—is considered by many to be the first instance when modern
project
management techniques were used, ancient history is replete
with examples.
Some of the better known ones include the construction of the
Egyptian
pyramids, the conquest of the Persian Empire by Alexander the
Great, and
the building of the Temple in Jerusalem. In the 1960s, formal
project
management methods received their greatest impetus with the
Apollo
program and a cluster of large, formidable construction
projects.
Today, activities such as the transport of American forces in
Operations in
Iraq and Afghanistan, the pursuit of new treatments for AIDS
and Ebola, and
the development of the joint U.S.–Russian space station and the
manned
space mission to Mars are examples of three projects with which
most of us
are familiar. Additional examples of a more routine nature

include:
Selecting a software package
Developing a new office plan or layout
Implementing a new decision support system
Introducing a new product to the market
Designing an airplane, supercomputer, or work center
Opening a new store
Constructing a bridge, dam, highway, or building
Relocating an office or a factory
Performing major maintenance or repair
Starting up a new manufacturing or service facility
Producing and directing a movie
1.3.1 Definitions and Issues
As the list above suggests, a project may be viewed or defined
in several
different ways: for example, as “the entire process required to
produce a new
product, new plant, new system, or other specified results”
(Archibald 2003)
or as “a narrowly defined activity which is planned for a finite
duration with a
specific goal to be achieved” (General Electric Corporation

1983). Generally
speaking, project management occurs when emphasis and
special attention
are given to the performance of nonrepetitive activities for the
purpose of
meeting a single set of goals, typically under a set of constraints
such as time
and budget constraints.
By implication, project management deals with a one-time
effort to achieve a
focused objective. How progress and outcomes are measured,
though,
depends on a number of critical factors. Typical among these
are technology
(specifications, performance, quality), time (due dates,
milestones), and cost
(total investment, required cash flow), as well as profits,
resource utilization,
market share, and market acceptance.
These factors and their relative importance are major issues in
project
management. These factors are based on the needs and
expectations of the
stakeholders. Stakeholders are individuals and parties interested
in the
problem the project is designed to solve or in the solution
selected. With a
well-defined set of goals, it is possible to develop appropriate
performance
measures and to select the right technology, the organizational
structure,
required resources, and people who will team up to achieve
these goals.
Figure 1.2 summarizes the underlying processes. As illustrated,

most projects
are initiated by a need. A new need may be identified by
stakeholders such as
a customer, the marketing department, or any member of an
organization.
When management is convinced that the need is genuine, goals
may be
defined, and the first steps may be taken toward putting together
a project
team. Most projects have several goals covering such aspects as
technical and
operational requirements, delivery dates, and cost. A set of
potential projects
to undertake should be ranked by stakeholders based on the
relative
importance of the goals and the perceived probability of each
potential
project to achieve each of the individual goals.
Figure 1.2
Major processes in project management.
On the basis of these rankings and a derived set of performance
measures for
each goal, the technological alternatives are evaluated and a
concept (or
initial design) is developed along with a schedule and a budget
for the
project. This early phase of the project life cycle is known as
the initiation
phase, the front end of the project, or the conceptual phase. The

next step is
to integrate the design, the schedule, and the budget into a
project plan
specifying what should be done, by whom, at what cost, and
when. As the
plan is implemented, the actual accomplishments are monitored
and recorded.
Adjustments, aimed at keeping the project on track, are made
when
deviations or overruns appear. When the project terminates, its
success is
evaluated based on the predetermined goals and performance
measures.
Figure 1.3 compares two projects with these points in mind. In
project 1, a
“design to cost” approach is taken. Here, the budget is fixed and
the
technological goals are clearly specified. Cost, performance,
and schedule are
all given equal weight. In project 2, the technological goals are
paramount
and must be achieved, even if it means compromising the
schedule and the
budget in the process.
Figure 1.3
Relative importance of goals.
The first situation is typical of standard construction and
manufacturing
projects, whereby a contractor agrees to supply a system or a

product in
accordance with a given schedule and budget. The second
situation is typical
of “cost plus fixed fee” projects where the technological
uncertainties argue
against a contractor’s committing to a fixed cost and schedule.
This
arrangement is most common in a research and development
(R&D)
environment.
A well-designed organizational structure is required to handle
projects as a
result of their uniqueness, variety, and limited life span. In
addition, special
skills are required to manage them successfully. Taken together,
these skills
and organizational structures have been the catalyst for the
development of
the project management discipline. Some of the accompanying
tools and
techniques, though, are equally applicable in the manufacturing
and service
sectors.
Because projects are characterized by a “one-time only” effort,
learning is
limited and most operations never become routine. This results
in a need for
extensive management involvement throughout the life cycle of
the project.
In addition, the lack of continuity leads to a high degree of
uncertainty.

1.3.2 Risk and Uncertainty
In project management, it is common to refer to very high levels
of
uncertainty as sources of risk. Risk is present in most projects,
especially in
the R&D environment. Without trying to sound too pessimistic,
it is prudent
to assume that what can go wrong will go wrong. Principal
sources of
uncertainty include random variations in component and
subsystem
performance, inaccurate or inadequate data, and the inability to
forecast
satisfactorily as a result of lack of experience. Specifically,
there may be
1. Uncertainty in scheduling. Changes in the environment that
are
impossible to forecast accurately at the outset of a project are
likely to
have a critical impact on the length of certain activities. For
example,
subcontractor performance or the time it takes to obtain a long-
term loan
is bound to influence the length of various subtasks. The
availability of
scarce resources may also add to uncertainty in scheduling.
Methods are
needed to deal with problematic or unstable time estimates.
Probability
theory and simulation both have been used successfully for this
purpose,
as discussed in Chapter 9.
2. Uncertainty in cost. Limited information on the duration of
activities

makes it difficult to predict the amount of resources needed to
complete
them on schedule. This translates directly into an uncertainty in
cost. In
addition, the expected hourly rate of resources and the cost of
materials
used to carry out project tasks may possess a high degree of
variability.
3. Technological uncertainty. This form of uncertainty is
typically present
in R&D projects in which new (not thoroughly tested and
approved)
technologies, methods, equipment, and systems are developed or
used.
Technological uncertainty may affect the schedule, the cost, and
the
ultimate success of the project. The integration of familiar
technologies
into one system or product may cause technological uncertainty
as well.
The same applies to the development of software and its
integration with
hardware.
There are other sources of uncertainty, including those of an
organizational
and political nature. New regulations might affect the market
for a project,
whereas the turnover of personnel and changes in the policies of
one or more
of the participating organizations may disrupt the flow of work.

To gain a better understanding of the effects of uncertainty,
consider the three
projects mentioned earlier. The transport of American armed
forces in
Operation Iraqi Freedom faced extreme political and logistical
uncertainties.
In the initial stages, none of the planners had a clear idea of
how many troops
would be needed or how much time was available to put the
troops in place.
Also, it was unknown whether permission would be granted to
use NATO air
bases or even to fly over European and Middle Eastern
countries, or how
much tactical support would be forthcoming from U.S. allies.
The development of a treatment for AIDS is an ongoing project
fraught with
technological uncertainty. Hundreds of millions of dollars have
already been
spent with little progress toward a cure. As expected,
researchers have taken
many false steps, and many promising paths have turned out to
be dead ends.
Lengthy trial procedures and duplicative efforts have produced
additional
frustration. If success finally comes, it is unlikely that the
original plans or
schemes will have predicted its form.
The design of the U.S.–Russian space station is an example in
which virtually
every form of uncertainty is present. Politicians continue to
play havoc with
the budget, while other stakeholders like special interest groups
(both friendly

and hostile) push their individual agendas; schedules get altered
and
rearranged; software fails to perform correctly; and the needed
resources
never seem to be available in adequate supply. Inflation, high
turnover rates,
and scaled-down expectations take their toll on the internal
workforce, as
well as on the legion of subcontractors.
The American Production and Inventory Control Society has,
tongue-in-
cheek, fashioned the following laws in an attempt to explain the
consequences of uncertainty on project management.
Laws of Project Management
1. No major project is ever installed on time, within budget or
with the
same staff that started it. Yours will not be the first.
2. Projects progress quickly until they become 90% complete,
then they
remain at 90% complete forever.
3. One advantage of fuzzy project objectives is that they let you
avoid the
embarrassment of estimating the corresponding costs.
4. When things are going well, something will go wrong.
When things just cannot get any worse, they will.

When things seem to be going better, you have overlooked
something.
5. If project content is allowed to change freely, then the rate of
change
will exceed the rate of progress.
6. No system is ever completely debugged. Attempts to debug a
system
inevitably introduce new bugs that are even harder to find.
7. A carelessly planned project will take three times longer to
complete
than expected; a carefully planned project will take only twice
as long.
8. Project teams detest progress reporting because it vividly
manifests their
lack of progress.
1.3.3 Phases of a Project
A project passes through a life cycle that may vary with size
and complexity
and with the style established by the organization. The names of
the various
phases may differ but typically include those shown in Figure
1.4. To begin,
there is an initiation or a conceptual design phase during which
the
organization realizes that a project may be needed or receives a
request from
a customer to propose a plan to perform a project; at this phase
alternative

technologies and operational solutions are evaluated and the
most promising
are selected based on performances, cost, risk, and schedule
considerations.
Next there is an advanced development or preliminary system
design phase in
which the project manager (and perhaps a staff if the project is
complex)
plans the project to a level of detail sufficient for initial
scheduling and
budgeting. If the project is approved, it then will enter a more
detailed design
phase, a production phase, and a termination phase.
Figure 1.4
Relationship between project life cycle and cost.
In Figure 1.4, the five phases in the life cycle of a project are
presented as a
function of time. The cost during each phase depends on the
specifics, but
usually the majority of the budget is spent during the production
phase.
However, most of this budget is committed during the advanced
development
phase and the detailed design phase before the actual work takes
place.
Management plays a vital role during the conceptual design
phase, the

advanced development phase, and the detailed design phase.
The importance
of this involvement in defining goals, selecting performance
measures,
evaluating alternatives (including the no-go or not to do the
project),
selecting the most promising alternative and planning the
project cannot be
overemphasized. Pressures to start the “real work” on the
project, that is, to
begin the production (or execution) phase as early as possible,
may lead to
the selection of the wrong technological or operational
alternatives and
consequently to high cost and schedule risks as a result of the
commitment of
resources without adequate planning.
In most cases, a work breakdown structure (WBS) is developed
during the
conceptual design phase. The WBS is a document that divides
the project
work into major hardware, software, data, and service elements.
These
elements are further divided and a list is produced identifying
all tasks that
must be accomplished to complete the project. The WBS helps
to define the
work to be performed and provides a framework for planning,
budgeting,
monitoring, and control. Therefore, as the project advances,
schedule and
cost performance can be compared with plans and budgets.
Table 1.1 shows
an abbreviated WBS for an orbital space laboratory vehicle.

TABLE 1.1 Partial WBS for
Space Laboratory
Index Work element
1.0 Command module
2.0 Laboratory module
3.0 Main propulsion system
3.1 Fuel supply system
3.1.1 Fuel tank assembly
3.1.1.1 Fuel tank casing
3.1.1.2 Fuel tank insulation
4.0 Guidance system
5.0 Habitat module
6.0 Training system
7.0 Logistic support system
The detailed project definition, as reflected in the WBS, is
examined during
the advanced development phase to determine the skills
necessary to achieve
the project’s goals. Depending on the planning horizon,
personnel from other
parts of the organization may be used temporarily to accomplish
the project.
However, previous commitments may limit the availability of
these
resources. Other strategies might include hiring new personnel
or
subcontracting various work elements, as well as leasing
equipment and
facilities.
1.3.4 Organizing for a Project
A variety of structures are used by organizations to perform

project work.
The actual arrangement may depend on the proportion of the
company’s
business that is project oriented, the scope and duration of the
underlying
tasks, the capabilities of the available personnel, preferences of
the decision
makers, and so on. The following five possibilities range from
no special
structure to a totally separate project organization.
1. Functional organization. Many companies are organized as a
hierarchy
with functional departments that specialize in a particular type
of work,
such as engineering or sales (see Figure 1.5). These departments
are
often broken down into smaller units that focus on special areas
within
the function. Upper management may divide a project into work
tasks
and assign them to the appropriate functional units. The project
is then
budgeted and managed through the normal management
hierarchy.
Figure 1.5
Portion of a typical functional organization.
2. Project coordinator. A project may be handled through the
organization
as described above, but with a special appointee to coordinate

it. The
project is still funded through the normal channels and the
functional
managers retain responsibility and authority for their portion of
the
work. The coordinator meets with the functional managers and
provides
direction and impetus for the project and may report its status to
higher
management.
3. Matrix organization. In a matrix organization, a project
manager is
responsible for completion of the project and is often assigned a
budget.
The project manager essentially contracts with the functional
managers
for completion of specific tasks and coordinates project efforts
across
the functional units. The functional managers assign work to
employees
and coordinate work within their areas. These arrangements are
depicted
schematically in Figure 1.6.
4. Project team. A particularly significant project (development
of a new
product or business venture) that will have a long duration and
requires
the full-time efforts of a group may be supervised by a project
team.
Full-time personnel are assigned to the project and are
physically

located with other team members. The project has its own
management
structure and budget as though it were a separate division of the
company.
5. Projectized organization. When the project is of strategic
importance,
extremely complex and of long duration, and involves a number
of
disparate organizations, it is advisable to give one person
complete
control of all the elements necessary to accomplish the stated
goals. For
example, when Rockwell International was awarded two
multimillion-
dollar contracts (the Apollo command and service modules, and
the
second stage of the Saturn launch vehicle) by NASA, two
separate
programs were set up in different locations of the organization.
Each
program was under a division vice president and had its own
manufacturing plant and staff of specialists. Such an
arrangement takes
the idea of a self-sufficient project team to an extreme and is
known as a
projectized organization.
Table 1.2 enumerates some advantages and disadvantages of the
two
extremes—the functional and projectized organizations.
Companies that are
frequently involved in a series of projects and occasionally shift
around
personnel often elect to use a matrix organization. This type of
organization

provides the flexibility to assign employees to one or more
projects. In this
arrangement, project personnel maintain a permanent reporting
relationship
that connects vertically to a supervisor in a functional area, who
directs the
scope of their work. At the same time, each person is assigned
to one or more
projects and has a horizontal reporting relationship to the
manager of a
particular project, who coordinates his or her participation in
that project. Pay
and career advancement are developed within a particular
discipline even
though a person may be assigned to different projects. At times,
this dual
reporting relationship can give rise to a host of personnel
problems and
creates conflicts.
Figure 1.6
Typical matrix organization.
TABLE 1.2 Advantages and
Disadvantages of Two
Organizational Structures
Functional organization Projectized organization

Advantages
Efficient use of technical
personnel
Career continuity and growth for
technical personnel
Good technology transfer between
projects
Good stability, security, and
morale
Good project schedule and cost
control
Single point for customer
contact
Rapid reaction time possible
Simpler project communication
Training ground for general
management
Disadvantages
Weak customer interface Uncertain technical direction
Weak project authority Inefficient use of specialists
Poor horizontal communications Insecurity regarding future job
assignments
Discipline (technology) oriented
rather than program oriented

Poor crossfeed of technical
information between projects
Slower work flow
1.4 Project Manager
The presence of uncertainty coupled with limited experience
and hard-to-find
data makes project management a combination of art, science,
and, most of
all, logical thinking. A good project manager must be familiar
with a large
number of disciplines and techniques. Breadth of knowledge is
particularly
important because most projects have technical, financial,
marketing, and
organizational aspects that inevitably conspire to derail the best
of plans.
The role of the project manager may start at different points in
the life cycle
of a project. Some managers are involved from the beginning,
helping to
select the best technological and operational alternatives for the
project, form
the team, and negotiate the contracts. Others may begin at a
later stage and be
asked to execute plans that they did not have a hand in
developing. At some
point, though, most project managers deal with the basic issues:
scheduling,
budgeting, resource allocation, resource management,
stakeholder

management (e.g., human relations and negotiations).
It is an essential and perhaps the most difficult part of the
project manager’s
job to pay close attention to the big picture without losing sight
of critical
details, no matter how slight. In order to efficiently and
effectively achieve
high-level project goals, project managers must prioritize
concerns key
stakeholders while managing change that inevitably arises
during a project’s
life cycle. A project manager is an integrator and needs to trade
off different
aspects of the project each time a decision is called for.
Questions such as,
“How important is the budget relative to the schedule?” and
“Should more
resources be acquired to avoid delays at the expense of a budget
overrun, or
should a slight deviation in performance standards be tolerated
as long as the
project is kept on schedule and on budget?” are common.
Some skills can be taught, other skills are acquired only with
time and
experience, and yet other skills are very hard to learn or to
acquire, such as
the ability to lead a team without formal authority and the
ability to deal with
high levels of uncertainty without panic. We will not dwell on
these but
simply point them out, as we define fundamental principles and
procedures.

Nevertheless, one of our basic aims is to highlight the practical
aspects of
project management and to show how modern organizations can
function
more effectively by adopting them. In so doing, we hope to
provide all
members of the project team with a comprehensive view of the
field.
1.4.1 Basic Functions
The PMI (2012) identifies ten knowledge areas that the
discipline must
address:
1. Integration management
2. Scope management
3. Time management
4. Cost management
5. Quality management
6. Human resource management
7. Communication management
8. Risk management
9. Procurement management
10. Stakeholders management
Managing a project is a complex and challenging assignment.

Because
projects are one-of-a-kind endeavors, there is little in the way
of experience,
normal working relationships, or established procedures to
guide participants.
A project manager may have to coordinate many diverse efforts
and activities
to achieve project goals. People from various disciplines and
from various
parts of the organization who have never worked together may
be assigned to
a project for different spans of time. Subcontractors who are
unfamiliar with
the organization may be brought in to carry out major tasks. A
project may
involve thousands of interrelated activities performed by people
who are
employed by any one of several different subcontractors or by
the sponsoring
organization.
Project leaders must have an effective means of identifying and
communicating the planned activities and their
interrelationships. A
computer-based scheduling and monitoring system is usually
essential.
Network techniques such as CPM (critical path method) and
PERT (program
evaluation and review technique) are likely to figure
prominently in such
systems. CPM was developed in 1957 by J.E. Kelly of
Remington-Rand and
M.R. Walker of Dupont to aid in scheduling maintenance

shutdowns of
chemical plants. PERT was developed in 1958 under the
sponsorship of the
U.S. Navy Special Projects Office, as a management tool for
scheduling and
controlling the Polaris missile program. Collectively, their
value has been
demonstrated time and again during both the planning and the
execution
phases of projects.
1.4.2 Characteristics of Effective
Project Managers
The project manager is responsible for ensuring that tasks are
completed on
time and within budget, but often has no formal authority over
those who
actually perform the work. He or she, therefore, must have a
firm
understanding of the overall job and rely on negotiation and
persuasion skills
to influence the array of contractors, functionaries, and
specialists assigned to
the project. The skills that a typical project manager needs are
summarized in
Figure 1.7; the complexity of the situation is depicted in Figure
1.8, which
shows the interactions between some of the stakeholders: client,
subcontractor, and top management.
The project manager is a lightning rod, frequently under a storm
of pressure
and stress. He or she must deal effectively with the changing
priorities of the
client, the anxieties of his or her own management ever fearful
of cost and

schedule overruns or technological failures, and the divided
loyalties of the
personnel assigned to the team. The ability to trade off
conflicting goals and
to find the optimal balance between conflicting positions is
probably the most
important skill of the job.
In general, project managers require enthusiasm, stamina, and
an appetite for
hard work to withstand the onslaught of technical and political
concerns.
Where possible, they should have seniority and position in the
organization
commensurate with that of the functional managers with whom
they must
deal. Regardless of whether they are coordinators within a
functional
structure or managers in a matrix structure, they will frequently
find their
formal authority incomplete. Therefore, they must have the
blend of
technical, administrative, and interpersonal skills as illustrated
in Figure 1.7
to furnish effective leadership.
1.5 Components, Concepts, and
Terminology
Although each project has a unique set of goals, there is enough
commonality
at a generic level to permit the development of a unified

framework for
planning and control. Project management techniques are
designed to handle
the common processes and problems that arise during a
project’s life cycle.
This does not mean, however, that one versed in such
techniques will be a
successful manager. Experts are needed to collect and interpret
data,
negotiate contracts, arrange for resources, manage stakeholders,
and deal with
a wide range of technical and organizational issues that impinge
on both the
cost and the schedule.
The following list contains the major components of a “typical”
project.
Project initiation, selection, and definition
Identification of needs
Mapping of stakeholders (who are they, what are their needs
and
expectations, how much influence and power they have, will
they
be engaged and by how much and will they be involved in the
project and by how much)
Figure 1.7
Important skills for the project manager.

Figure 1.8
Major interactions of project stakeholders.
Development of (technological and operational) alternatives
Evaluation of alternatives based on performances, cost,
duration,
and risk
Selection of the “most promising” alternatives
Estimation of the life cycle cost (LCC) of the promising
alternatives
Assessment of risk of the promising alternatives
Development of a configuration baseline
“Selling” the configuration and getting approval
Project organization
Selection of participating organizations
Structuring the work content of the project into smaller work
packages using a WBS
Allocation of WBS elements to participating organizations and
assigning managers to the work packages
Development of the project organizational structure and

associated
communication and reporting facilities
Analysis of activities
Definition of the project’s major tasks
Development of a list of activities required to complete the
project’s tasks
Development of precedence relations among activities
Development of a network model
Development of higher level network elements (hammock
activities, subnetworks)
Selection of milestones
Updating the network and its elements
Project scheduling
Development of a calendar
Assigning resources to activities and estimation of activity
durations
Estimation of activity performance dates
Monitoring actual progress and milestones
Updating the schedule

Resource management
Definition of resource requirements
Acquisition of resources
Allocation of resources among projects/activities
Monitoring resource use and cost
Technological management
Development of a configuration management plan
Identification of technological risks
Configuration control
Risk management and control
Total quality management (TQM)
Project budgeting
Estimation of direct and indirect costs
Development of a cash flow forecast
Development of a budget
Monitoring actual cost
Project execution and control
Development of data collection systems

Development of data analysis systems
Execution of activities
Data collection and analysis
Detection of deviations in cost, configuration, schedule, and
quality
Development of corrective plans
Implementation of corrective plans
Forecasting of project cost at completion
Project termination
Evaluation of project success
Recommendation for improvements in project management
practices
Analysis and storage of information on actual cost, actual
duration,
actual performance, and configuration
Each of these activities is discussed in detail in subsequent
chapters. Here, we
give an overview with the intention of introducing important
concepts and the
relationships among them. We also mention some of the tools
developed to
support the management of each activity.

1. Project initiation, selection, and definition. This process
starts with
identifying a need for a new service, product, or system. The
trigger can
come from any number of sources, including a current client,
line
personnel, or a proposed request from an outside organization.
The
trigger can come from one or more stakeholders who may have
similar
or conflicting needs and expectations. If the need is considered
important and feasible solutions exist, then the need is
translated into
technical specifications. Next, a study of alternative solution
approaches
is initiated. Each alternative is evaluated based on a
predetermined set of
performance measures, and the most promising compose the
“efficient
frontier” of possible solutions. An effort is made to estimate the
performances, duration, costs, and risks associated with the
efficient
alternatives. Cost estimates for development, production (or
purchasing), maintenance, and operations form the basis of a
Life Cycle
Cost (LCC) model used for selecting the “optimal” alternative.
Because of uncertainty, most of the estimates are likely to be
problematic. A risk assessment may be required if high levels of
uncertainty are present. The risk associated with an unfavorable
outcome is defined as the probability of that outcome multiplied
by the
cost associated with it. A proactive risk management approach

means
that major risk drivers should be identified early in the process,
and
contingency plans should be prepared to handle unfavorable
events if
and when they occur.
Once an alternative is chosen, design details are fleshed out
during the
concept formulation and definition phase of the project.
Preliminary
design efforts end with a configuration baseline. This
configuration (the
principal alternative) has to satisfy the needs and expectations
of the
most important stakeholders and be accepted and approved by
management. A well-structured selection and evaluation
process, in
which all relevant parties are involved, increases the probability
of
management approval. A generic flow diagram for the processes
of
project initiation selection and definition is presented in Figure
1.9.
Figure 1.9
Major activities in the conceptual design phase.
2. Project organization. Many stakeholders, ranging from
private firms and
research laboratories to public utilities and government
agencies, may

participate in a particular project. In the advanced development
phase, it
is common to define the work content [statement of work
(SOW)] as a
set of tasks, and to array them hierarchically in a treelike form
known as
the WBS. The relationship between participating organizations,
known
as the organizational breakdown structure (OBS) is similarly
represented.
In the OBS, the lines of communication between and within
organizations are defined, and procedures for work
authorization and
report preparation and distribution are established. Finally,
lower-level
WBS elements are assigned to lower-level OBS elements to
form work
packages and a responsibility matrix is constructed, indicating
which
organizational unit is responsible for which WBS element.
At the end of the advanced development phase, a more detailed
cost
estimate and a long-range budget proposal are prepared and
submitted
for management approval. A positive response signals the go-
ahead for
detailed planning and organizational design. This includes the
next five
functions.
3. Analysis of activities. To assess the need for resources and to

prepare a
detailed schedule, it is necessary to develop a detailed list of
activities
that are to be performed. These activities should be aimed at
accomplishing the WBS tasks in a logical, economically sound,
and
technically feasible manner. Each task defined in the initial
planning
phase may consist of one or more activities. Feasibility is
ensured by
introducing precedence relations among activities. These
relations can
be represented graphically in the form of a network model.
Completion of an important activity may define a milestone and
is
represented in the network model. Milestones provide feedback
in
support of project control and form the basis for budgeting,
scheduling,
and resource management. As progress is made, the model has
to be
updated to account for the inclusion of new activities in the
WBS, the
successful completion of tasks, and any changes in design,
organization,
and schedule as a result of uncertainty, new needs, or new
technological
and political developments.
4. Project scheduling. The expected execution dates of activities
are
important from both a financial (acquisition of the required

funds) and
an operational (acquisition of the required resources) point of
view.
Scheduling of project activities starts with the definition of a
calendar
specifying the working hours per day, working days per week,
holidays,
and so on. The expected duration of each activity is estimated,
and a
project schedule is developed based on the calendar, precedence
relations among activities, and the expected duration of each
activity.
The schedule specifies the starting and ending dates of each
activity and
the accompanying slack or leeway. This information is used in
budgeting and resource management. The schedule is used as a
basis for
work authorization and as a baseline against which actual
progress is
measured. It is updated throughout the life cycle of the project
to reflect
actual progress.
5. Resource management. Activities are performed by resources
so that
before any concrete steps can be taken, requirements have to be
identified. This means defining one or more alternatives for
meeting the
estimated needs of each activity (the duration of an activity may
be a
function of the resources assigned to perform it). Based on the
results,
and in light of the project schedule, total resource requirements
are
estimated. These requirements are the basis of resource
management and

resource acquisition planning.
When requirements exceed expected availability, schedule
delays may
occur unless the difference is made up by acquiring additional
resources
or by subcontracting. Alternatively, it may be possible to
reschedule
activities (especially those with slack) so as not to exceed
expected
resource availability. Other considerations, such as minimizing
fluctuations in resource usage and maximizing resource
utilization, may
be applicable as well.
During the execution phase, resources are allocated periodically
to
projects and activities in accordance with a predetermined
timetable.
However, because actual and planned use may differ, it is
important to
monitor and compare progress to plans. Low utilization as well
as
higher-than-planned costs or consumption rates indicate
problems and
should be brought to the immediate attention of management.
Large
discrepancies may call for significant alterations in the
schedule.
6. Technological management. Once the technological
alternatives are
evaluated and a consensus forms, the approved configuration is

adopted
as a baseline. From the baseline, plans for project execution are
developed, tests to validate operational and technical
requirements are
designed, and contingency plans for risky areas are formulated.
Changes
in needs or in the environment may trigger modifications to the
configuration. Technological management deals with execution
of the
project to achieve the approved baseline. Principal functions
include the
evaluation of proposed changes, the introduction of approved
changes
into the configuration baseline, and development of a total
quality
management (TQM) program. TQM involves the continuous
effort to
prevent defects, to improve processes, and to guarantee a final
result that
fits the specifications of the project and the expectations of the
client.
7. Project budgeting. Money is the most common resource used
in a
project. Equipment and labor have to be acquired, and suppliers
have to
be paid. Overhead costs have to be assigned, and subcontractors
have to
be put on the payroll. Preparation of a budget is an important
management activity that results in a time-phased plan
summarizing
expected expenditures, income, and milestones.
The budget is derived by estimating the cost of activities and
resources.
Because the schedule of the project relates activities and

resource use to
the calendar, the budget is also related to the same calendar.
With this
information, a cash flow analysis can be performed, and the
feasibility
of the predicted outlays can be tested. If the resulting cash flow
or the
resulting budget is not acceptable, then the schedule should be
modified.
This is frequently done by delaying activities that have slack.
Once an acceptable budget is developed, it serves as the basic
financial
tool for the project. Credit lines and loans can be arranged, and
the cost
of financing the project can be assessed. As work progresses,
information on actual cost is accumulated and compared with
the
budget. This comparison forms the basis for controlling costs.
The
sequence of activities performed during the detailed design
phase is
summarized in Figure 1.10.
Figure 1.10
Major activities in the detailed design phase.
8. Project execution and control. The activities described so far
compose
the necessary steps in initializing and preparing a project for
execution.
A feasible schedule that integrates task deadlines, budget

considerations,
resource availability, and technological requirements, while
satisfying
the precedence relations among activities, provides a good
starting point
for a project.
It is important, however, to remember that successful
implementation of
the initial schedule is subject to unexpected or random effects
that are
difficult (or impossible) to predict. In situations in which all
resources
are under the direct control of management and activated
according to
plan, unexpected circumstances or events may sharply divert
progress
from the original plan. For resources that are not under
complete
management control, much higher levels of uncertainty may
exist, for
example, a downturn in the economy, labor unrest, technology
breakthroughs or failures, and new environmental regulations.
Project control systems are designed with three purposes in
mind: (1) to
detect current deviations and to forecast future deviations
between actual
progress and the project plans; (2) to trace the source of these
deviations; and (3) to support management decisions aimed at
putting
the project back on the desired course.
Project control is based on the collection and analysis of the

most recent
performance data. Actual progress, actual cost, resource use,
and
technological achievements should be monitored continually.
The
information gleaned from this process is compared with updated
plans
across all aspects of the project. Deviations in one area (e.g.,
schedule
overrun) may affect the performance and deviations in other
areas (e.g.,
cost overrun).
In general, all operational data collected by the control system
are
analyzed, and, if deviations are detected, a scheme is devised to
put the
project back on course. The existing plan is modified
accordingly, and
steps are taken to monitor its implementation.
During the life cycle of the project, a continuous effort is made
to update
original estimates of completion dates and costs. These updates
are used
by management to evaluate the progress of the project and the
efficiency
of the participating organizations. These evaluations form the
basis of
management forecasts regarding the expected success of the
project at
each stage of its life cycle.
Schedule deviations might have implications on a project’s
finances or
Profit and Loss (P and L), if payments are based on actual

progress. If a
schedule overrun occurs and payments are delayed, then cash
flow
difficulties might result. Schedule overruns might also cause
excess load
on resources as a result of the accumulation of work content. A
well-
designed control system in the hands of a well-trained project
manager
is the best way to counteract the negative effects of uncertainty.
9. Project termination. A project does not necessarily terminate
as soon as
its technical objectives are met. Management should strive to
learn from
past experience to improve the handling of future projects. A
detailed
analysis of the original plan, the modifications made over time,
the
actual progress, and the relative success of the project should be
conducted. The underlying goal is to identify procedures and
techniques
that were not effective and to recommend ways to improve
operations.
An effort aimed at identifying missing or redundant managerial
tools
should also be initiated; new techniques for project management
should
be adopted when necessary, and obsolete procedures and tools
should be
discarded.
Information on the actual cost and duration of activities and the

cost and
utilization of resources should be stored in well-organized
databases to
support the planning effort in future projects. Only by striving
for
continuous improvement and organizational learning through
programs
based on past experience is competitiveness likely to persist in
an
organization. Policies, procedures, and tools must be updated on
a
regular basis.
1.6 Movement to Project-Based
Work
Increased reliance on the use of project management techniques,
especially
for research and development, stems from the changing
circumstances in
which modern businesses must compete. Pinto (2002) pointed
out that among
the most important influences promoting a project orientation in
recent years
have been the following:
1. Shortened product life cycles. Products become obsolete at an
increasingly rapid rate, requiring companies to invest ever-
higher
amounts in R&D and new product development.
2. Narrow product launch windows. When a delay of months or
even
weeks can cost a firm its competitive advantage, new products
are often

scheduled for launch within a narrow time band.
3. Huge influx of global markets. New global opportunities
raise new
global challenges, such as the increasing difficulty of being first
to
market with superior products.
4. Increasingly complex and technical problems. As technical
advances are
diffused into organizations and technical complexity grows, the
challenge of R&D becomes increasingly difficult.
5. Low inflation. Corporate profits must now come less from
raising prices
year after year and more from streamlining internal operations
to
become ever more efficient.
Durney and Donnelly investigated the effects of rapid
technological change
on complex information technology projects (2013). The impact
of these and
other economic factors has created conditions under which
companies that
use project management are flourishing. Their success has
encouraged
increasingly more organizations to give the discipline a serious
look as they
contemplate how to become “project savvy.” At the same time,
they
recognize that, for all the interest in developing a project-based
outlook, there

is a severe shortage of trained project managers needed to
convert market
opportunities into profits. Historically, lack of training, poor
career ladders,
strong political resistance from line managers, unclear reward
structures, and
almost nonexistent documentation and operating protocols made
the decision
to become a project manager a risky move at best and downright
career
suicide at worst. Increasingly, however, management writers
such as Tom
Peters and insightful corporate executives such as Jack Welch
have become
strong advocates of the project management role. Between their
sponsorship
and the business pressures for enhancing the project
management function,
there is no doubt that we are witnessing a groundswell of
support that is
likely to continue into the foreseeable future.
Recent Trends in Project
Management
Like any robust field, project management is continuously
growing and
reorienting itself. Some of the more pronounced shifts and
advances can be
classified as follows:
1. Risk management. Developing more sophisticated up-front
methodologies to better assess risk before significant
commitment to the
project.
2. Scheduling. New approaches to project scheduling, such as

critical chain
project management, that offer some visible improvements over
traditional techniques.
3. Structure. Two important movements in organizational
structure are the
rise of the heavyweight project organization and the increasing
use of
project management offices.
4. Project team coordination. Two powerful advances in the area
of project
team development are the emphasis on cross-functional
cooperation and
the model of punctuated equilibrium as it pertains to intra-team
dynamics. Punctuated equilibrium proposes that rather than
evolution
occurring gradually in small steps, real natural change comes
about
through long periods of status quo interrupted by some seismic
event.
5. Control. Important new methods for tracking project costs
relative to
performance are best exemplified by earned value analysis.
Although
the technique has been around for some time, its wider diffusion
and use
are growing.
6. Impact of new technologies. Internet and web technologies
have given
rise to greater use of distributed and virtual project teams,

groups that
may never physically interact but must work in close
collaboration for
project success.
7. Lean project management. The work of teams of experts from
academia
and industry led to the development of the guide to lean
enablers for
managing engineering programs (2012). The list of these
enablers and
the way they should be implemented is an important step in the
development and application of lean project management
methodologies.
8. Process-based project management. The PMBOK (PMI
Standards
Committee 2012) views project management as a combination
of the ten
knowledge areas listed in Section 1.14.1. Each area is composed
of a set
of processes whose proper execution defines the essence of the
field.
1.7 Life Cycle of a Project: Strategic
and Tactical Issues
Because of the degree to which projects differ in their principal
attributes,
such as duration, cost, type of technology used, and sources of
uncertainty, it
is difficult to generalize the operational and technical issues
they each face. It
is possible, however, to discuss some strategic and tactical
issues that are

relevant to many types of projects. The framework for the
discussion is the
project life cycle or the major phases through which a “typical”
project
progresses. An outline of these phases is depicted in Figure 1.11
and
elaborated on by Cleland and Ireland (2006), who identify the
long-range
(strategic) and medium-range (tactical) issues that management
must
consider. A synopsis follows.
Figure 1.11
Project life cycle.
1. Conceptual design phase. In this phase, a stakeholder (client,
contractor,
or subcontractor) initiates the project and evaluates potential
alternatives. A client organization may start by identifying a
need or a
deficiency in existing operations and issuing a request for
proposal
(RFP).
The selection of projects at the conceptual design phase is a
strategic
decision based on the established goals of the organization,
needs,
ongoing projects, and long-term commitments and objectives. In
this
phase, expected benefits from alternative projects, assessment

of cost
and risks, and estimates of required resources are some of the
factors
weighed. Important action items include the initial “go/no go”
decision
for the entire project and “make or buy” decisions for
components and
equipment, development of contingency plans for high-risk
areas, and
the preliminary selection of subcontractors and other team
members who
will participate in the project.
In addition, upper management must consider the technological
aspects,
such as availability and maturity of the required technology, its
performance, and expected usage in subsequent projects.
Environmental
factors related to government regulations, potential markets,
and
competition also must be analyzed.
The selection of projects is based on a variety of goals and
performance
measures, including expected cost, profitability, risk, and
potential for
follow-on assignments. Once a project is selected and its
conceptual
design is approved, work begins on the second phase where
many of the
details are ironed out.
2. Advanced development phase. In this phase, the
organizational structure
of the project is formed by weighing the tactical advantages and
disadvantages of each possible arrangement mentioned in

Section 1.3.4.
Once a decision is made, lines of communication and
procedures for
work authorization and performance reporting are established.
This
leads to the framework in which the project is executed.
3. Detailed design phase. This is the phase in a project’s life
cycle in which
comprehensive plans are prepared. These plans consist of:
Product and process design
Final performance requirements
Detailed breakdown of the work structure
Scheduling information
Blueprints for cost and resource management
Detailed contingency plans for high-risk activities
Budgets
Expected cash flows
In addition—and most importantly—procedures and tools for
executing,
controlling, and correcting the project are developed. When this
phase is
completed, implementation can begin since the various plans
should

cover all aspects of the project in sufficient detail to support
work
authorization and execution.
The success of a project is highly correlated with the quality
and the
depth of the plans prepared during this phase. A detailed design
review
of each plan and each aspect of the project is, therefore,
conducted
before approval. A sensitivity analysis of environmental factors
that
contribute to uncertainty also may be needed. This analysis is
typically
performed as part of “what-if” studies using expert opinions and
simulation as supporting mechanisms.
In most situations, the resources committed to the project are
defined
during the initial phases of its life cycle. Although these
resources are
used later, the strategic issues of how much to spend and at
what rate are
addressed here.
4. Production or execution phase. The fourth life-cycle phase
involves the
execution of plans and in most projects dominates the others in
effort
and duration. The critical strategic issue here relates to
maintaining top
management support, while the critical tactical issues center on
the flow
of communications within and among the participating

organizations. At
this level, the focus is on actual performance and changes in the
original
plans. Modifications can take different forms—in the extreme
case, a
project may be canceled. More likely, though, the scope of
work,
schedule, and budget will be adjusted as the situation dictates.
Throughout this phase, management’s task is to assign work to
the
participating parties, to monitor actual progress and compare it
with the
baseline plans. The establishment and operation of a well-
designed
communications and control system therefore are necessary.
Support of the product or system throughout its entire life
(logistic
support) requires management attention in most engineering
projects for
which an operational phase is scheduled to follow
implementation. The
preparation for logistic support includes documentation,
personnel
training, maintenance, and initial acquisition of spare parts.
Neglecting
this activity or giving it only cursory attention can doom an
otherwise
successful venture.
5. Termination phase. In this phase, management’s goal is to
consolidate
what it has learned and translate this knowledge into ongoing
improvements in the process. Current lessons and experience
serve as
the basis for improved practice. Although successful projects

can
provide valuable insights, failures can teach us even more.
Databases
that store and support the retrieval of project management
information
related to project cost, schedules, resource utilization, and so on
are
assets of an organization. Readily available, accurate
information is a
key factor in the success of future projects.
6. Operational phase. The operational phase is frequently
outside the scope
of a project and may be carried out by organizations other than
those
involved in the earlier life-cycle stages. If, for example, the
project is to
design and build an assembly line for a new model of
automobile, then
the operation of the line (i.e., the production of the new cars)
will not be
part of the project because running a mass production system
requires a
different type of management approach. Alternatively, consider
the
design and testing of a prototype electric vehicle. Here, the
operational
phase, which involves operating and testing the prototype, will
be part of
the project because it is a one-time effort aimed at a very
specific goal.
In any case, from the project manager’s point of view, the
operational

phase is the most crucial because it is here that a judgment is
made as to
whether the project has achieved its technical and operational
goals.
Strategic issues such as long-term relationships with customers,
as well
as customer service and satisfaction, have a strong influence on
upper
management’s attitudes and decisions. Therefore, the project
manager
should be particularly aware of the need to open and maintain
lines of
communication between all parties, especially during this phase.
Other life cycle models are used including the Spiral model
(Boehm,
1986), which emphasizes prototyping and Agile Project
Management
(2001), which emphasizes collaboration and communication,
with
particular application to software development.
1.8 Factors that Affect the Success
of a Project
A study by Pinto and Slevin (1987) sought to find those factors
that
contribute most to a project’s success and to measure their
significance over
the life cycle. They found the following ten factors to be of
primary
importance. Additional insights are provided by Balachandra
and Friar
(1997) regarding new product development and by the Standish

Group that
focused on Information Technology (IT) projects since 1994
(The CHAOS
reports 1995–2013).
1. Project mission and goals. Well-defined and intelligible
understanding
of the project goals are the basis of planning and executing the
project.
Understanding the goals and performance measures used in the
evaluation is important for good coordination of efforts and
building
organizational support. Therefore, starting at the project
initiation or the
conceptual design phase of the project life cycle, the overall
mission
should be defined and explained to team members, contractors,
and
other participants.
2. Top management support. The competition for resources,
coupled with
the high levels of uncertainty typically found in the project
environment,
often leads to conflict and crisis. The continuous involvement
of top
management throughout the life cycle of the project increases
their
understanding of its mission and importance. This awareness, if
translated into support, may prove invaluable in resolving
problems
when crises and conflicts arise or when uncertainty strikes.
Therefore,
continued, solid communication between the project manager
and top
management is a catalyst for the project to be a success.

3. Project planning. The translation of the project mission,
goals, and
performance measures into a workable (feasible) plan is the link
between the initiation phase and the execution or production
phase. A
detailed plan that covers all aspects of the project—technical,
financial,
organizational, scheduling, communication, and control—is the
basis of
implementation. Planning does not end when execution starts
because
deviations from the original plans during implementation may
call for replanning and updating from one period to the next.
Thus,
planning is a dynamic and continuous process that links
changing goals
and performance to the final results.
4. Client consultation. The ultimate user of the project is the
final judge of
its success. A project that was completed on time according to
the
technical specifications and within budget but was never (or
rarely) used
can certainly be classified as a failure. In the conceptual design
phase of
the project life cycle, client input is the basis for setting the
mission and
establishing goals. In subsequent phases, continual consultation
with the
client can help in correcting errors previously made in
translating goals

into performance measures. In many projects, the client is a
group of
project stakeholders, each having needs and expectations from
the
project. However, as a result of changing needs and conditions,
a
mission statement that represented accurately the client’s needs
in the
conceptual design phase may no longer be valid in the planning
or
implementation phases. As discussed in Chapter 6, the
configuration
management system provides the link between existing plans
and
change requests issued by the client, as well as the project team.
5. Personnel issues. Satisfactory achievement of technical goals
without
violating schedule and budgetary constraints does not
necessarily
constitute a complete success, even if the stakeholders are
satisfied. If
relations among team members, between team members and the
client,
or between team members and other personnel in the
organization are
poor and morale problems are frequent, then project success is
doubtful.
Well-motivated teams with a sufficient level of commitment to
the
project and a good relationship with the other stakeholders are
the key
determinants of project success.
6. Technical issues. Understanding the technical aspects of the
project and

ensuring that members of the project team possess the necessary
skills
are important responsibilities of the project manager.
Inappropriate
technologies or technical incompatibility may affect all aspects
of the
project, including cost, schedule, system performance, and
morale.
7. Client acceptance. Ongoing client consultation (as well as
consultation
with other important stakeholders) during the project life cycle
increases
the probability of success regarding user acceptance. In the
final stages
of implementation, the stakeholders evaluate the resulting
project and
decide whether it is acceptable. A project that is rejected at this
point
must be viewed as a failure.
8. Project control. The continuous flow of information
regarding actual
progress is a feedback mechanism that allows the project
manager to
cope with uncertainty. By comparing actual progress with
current plans,
the project manager can identify deviations, anticipate
problems, and
initiate corrective actions. Lower-than-planned achievements in
technical areas as well as schedule and cost deviations detected
early in
the life cycle can help the project manager focus on the

important issues.
Plans can be updated or partially adjusted to keep the project on
schedule, on budget, and on target with respect to its mission.
9. Communication. The successful transition between the phases
of a
project’s life cycle and good coordination between participants
during
each phase requires a continuous exchange of information. In
general,
communication within the project team, with other parts of the
organization, and between the project manager and the client is
made
easier when lines of authority are well defined. The
organizational
structure of the project should specify the communication
channels and
the information that should flow through each one. In addition,
it should
specify the frequency at which this information should be
generated and
transmitted. The formal communication lines and a positive
working
environment that enhances informal communication within the
project
team contribute to the success of a project.
10. Troubleshooting. The control system is designed to identify
problem
areas and, if possible, to trace their source through the
organization.
Because uncertainty is always a likely culprit, the development
of
contingency plans is a valuable preventive step. The availability
of
prepared plans and procedures for handling problems can reduce

the
effort required for dealing with them should they actually occur.
1.9 About the Book: Purpose and
Structure
This book is designed to bridge the gap between theory and
practice by
presenting the tools and techniques most suited for modern
project
management. A principal goal is to give managers, engineers,
and technology
experts a larger appreciation of their roles by defining a
common terminology
and by explaining the interfaces between the underlying
disciplines.
Theoretical aspects are covered at a level appropriate for a
senior
undergraduate course or a first-year graduate course in either an
Engineering
or an MBA program. Special attention is paid to the use and
evaluation of
specific tools with respect to their real-world applicability.
Whether the book
is adopted for a course or is read by practitioners who want to
learn the “tools
of the trade,” we tried to present the subject matter in a concise
and fully
integrated manner.
A simulation tool, called the Project Team Builder (PTB), can
be used to
integrate the different aspects of project management and to
provide hands-on

experience of using these tools in a dynamic, uncertain
environment. The
PTB software is available from Sandboxmodel http://
www.sandboxmodel.com/.
The book is structured along functional lines and offers an in-
depth treatment
of basic processes, the economic aspects of project selection
and evaluation,
the technological aspects of configuration management, and the
various
issues related to budgeting, scheduling, and control. By
examining these
functions and their organizational links, a comprehensive
picture emerges of
the relationship that exists between project planning and
implementation.
The end of each chapter contains a series of discussion
questions and
exercises designed to stimulate thought and to test the readers’
grasp of the
material. In some cases, the intent is to explore supplementary
issues in a
more open-ended manner. Also included at the end of each
chapter is a team
http://www.sandboxmodel.com/
project centering on the design and construction of a solid waste
disposal
facility known as a thermal transfer plant. As the readers go
from one
chapter to the next, they are asked to address a particular aspect
of project

management as it relates to the planning of this facility.
Each of the remaining chapters deals with a specific component
of project
management or a specific phase in the project life cycle. A short
description
of Chapters 2 through 16 follows.
Chapter 2 focuses on process-based project management; it
begins with a
discussion of life-cycle models and their importance in
planning,
coordination, and control. We then introduce the concept of a
process, which
is a group of activities designed to transform a set of inputs
consisting of
data, technology, and resources into the desired outputs. The
remainder of the
chapter is devoted to the processes underlying the ten project
management
knowledge areas contained in the PMBOK. As we explain, these
processes,
along with an appropriate information system, constitute the
cornerstones of
process-based project management.
In Chapter 3, we address the economic aspects of projects and
the
quantitative techniques developed for analyzing a specific
alternative. The
long-term perspective is presented first by focusing on the time
value of
money. Investment evaluation criteria based on net present
value, internal
rate of return, and the payback period are discussed. Next, the
short-term

perspective is given by considering the role that cash flow
analysis plays in
evaluating projects and comparing alternatives. Ideas
surrounding risk and
uncertainty are introduced, followed by some concepts common
to decision
making, such as expected monetary value, utility theory,
breakeven analysis,
and diminishing returns. Specific decisions such as buy, make,
rent, or lease
are also elaborated.
The integration of LCC analysis into the project management
system is
covered in Chapter 4. LCC concepts and the treatment of
uncertainty in the
analysis are discussed, as well as classification schemes for cost
components.
The steps required in building LCC models are outlined and
explained to
facilitate their implementation. The idea that the cost of new
product
development is only a fraction of the total cost of ownership is
a central
theme of the chapter. The total LCC is determined largely in the
early phases
of a project when decisions regarding product design and
process selection
are being made. Some of the issues discussed in this context
include cost
estimation and risk evaluation. The concept of the cost
breakdown structure
and how it is used in planning is also presented.

The selection of a project from a list of available candidates and
the selection
of a particular configuration for a specific project are two key
management
decisions. The purpose of Chapter 5 is to present several basic
techniques that
can be used to support this process. Checklists and scoring
models are the
simplest and first to be introduced. This is followed by a
presentation of the
formal aspects of benefit-cost and cost-effectiveness analysis.
Issues related
to risk, and how to deal with them, tie all the material together.
The chapter
closes with a comprehensive treatment of decision trees. The
strengths and
weakness of each methodology are highlighted and examples are
given to
demonstrate the computations.
It is rare that any decision is made on the basis of one criterion
alone. To deal
more thoroughly with situations in which many objectives, often
in conflict
with one another, must be juggled simultaneously, a value
model that goes
beyond simple checklists is needed. In Chapter 6, we introduce
two of the
most popular such models for combining multiple, possibly
conflicting
objectives into a single measure of performance. Multiattribute
utility theory
(MAUT) is the first presented. Basic theory is discussed along
with the
guiding axioms. Next, the concepts and assumptions behind the

analytical
hierarchy process (AHP) are detailed. A case study contained in
the appendix
documents the results of a project aimed at comparing the two
approaches
and points out the relative advantages of each.
The OBS and the WBS are introduced in Chapter 7. The former
combines
several organizational units that reside in one or more
organizations by
defining communication channels for work authorization,
performance
reports, and assigning general responsibility for tasks.
Questions related to
the selection of the most appropriate organizational structure
are addressed,
and the advantages and disadvantages of each are presented.
Next, the WBS
of projects is discussed. This structure combines hardware,
software, data,
and services performed in a project into a hierarchical
framework. It further
facilitates identification of the critical relationships that exist
among various
project components. Subsequently, the combined OBS-WBS
matrix is
introduced, whereby each element in the lowest WBS level is
assigned to an
organizational unit at the lowest level of the OBS. This type of
integration is
the basis for detailed planning and control, as explained in
subsequent

chapters. We close with a discussion of human resources,
focusing on a
project manager’s responsibilities in this area.
In Chapter 8, the process by which the technological
configuration of projects
is developed and maintained is discussed. The first topic relates
to the
importance of time-based competition, the use of teams, and the
role of QFD
in engineering. We then show how tools such as benefit-cost
analysis and
MAUT can be used to select the best technological alternative
from a set of
potential candidates. Procedures used to handle engineering
change requests
via configuration management and configuration control are
presented.
Finally, the integration of quality management into the project
and its
relationship to configuration test and audit are highlighted.
Network analysis has played an important role in project
scheduling over the
past 50 years. In Chapter 9, we introduce the notions of
activities, precedence
relations, and task times, and show how they can be combined
in an analytic
framework to provide a mechanism for planning and control.
The idea of a
calendar and the relationship between activities and time are
presented, first
by Gantt charts and then by network models of the activity-on-
arrow/activity-
on-node type. This is followed by a discussion of precedence
relations,

feasibility issues, and the concepts of milestones, hammock
activities, and
subnetworks. Finally, uncertainty is introduced along with the
PERT
approach to estimating the critical path and the use of Monte
Carlo
simulation to gain a deeper understanding of a project’s
dynamics.
Chapter 10 opens with a discussion of the type of resources
used in projects.
A classification scheme is developed according to resource
availability, and
performance measures are suggested for assessing efficiency
and
effectiveness. Some general guidelines are presented as to how
resources
should be used to achieve better performance levels. The
relationship
between resources and their cost and the project schedule is
analyzed, and
mathematical models for resources allocation and leveling are
described.
In Chapter 11, we deal with the budget as a tool by which
organizational
strategies, goals, policies, and constraints are transformed into
an executable
plan that relates task completions and capital expenditures to
time.
Techniques commonly used for budget development,
presentation, and
execution are discussed. Issues also examined are the

relationship between
the duration and timing of activities and the budget of a project,
cash flow
constraints and liabilities, and the interrelationship among
several projects
performed by a single organizational unit.
The execution of a project is frequently subject to unforeseen
difficulties that
cause deviation from the original plans. The focus of Chapter 12
is on project
monitoring and control—a function that depends heavily on
early detection
of such deviations. The integration of OBS and WBS elements
serves as a
basis for the control system. Complementary components
include a
mechanism for tracing the source of each deviation and a
forecasting
procedure for assessing their implications if no corrective
action is taken.
Cost and schedule control techniques such as the earned value
approach are
presented and discussed.
Engineering projects where new technologies are developed and
implemented
are subject to high levels of uncertainty. In Chapter 13, we
define R&D
projects and highlight their unique characteristics. The typical
goals of such
projects are discussed, and measures of success are suggested.
Techniques for
handling risk, including the idea of parallel funding, are
presented. The need
for rework or repetition of some activities is discussed, and

techniques for
scheduling R&D projects are outlined. The idea of a portfolio is
introduced,
and tools used for portfolio management are discussed. A case
study that
involves screening criteria, project selection and termination
criteria, and the
allocation of limited resources is contained in the appendix.
A wide variety of software has been developed to assist the
project manager.
In Chapter 14, we discuss the basic functions and range of
capabilities
associated with these packages. A classification system is
devised, and a
process by which the most appropriate package can be selected
for a project
or an organization is outlined.
In Chapter 15, the need to terminate a project in a planned,
orderly manner is
discussed. The process by which information gathered in past
projects can be
stored, retrieved, and analyzed is presented. Post-mortem
analysis is
suggested as a vehicle by which continuous improvement can be
achieved in
an organization. The goal is to show how projects can be
terminated so that
the collective experience and knowledge can be transferred to
future
endeavors.

In Chapter 16, we present new developments in teaching Project
Management in MBA and Engineering programs. First we
discuss the need to
improve the way we teach project management. Next the idea of
Simulation
Based Training (SBT) as a way to gain “hands-on” experience
in a
controlled, safe environment where the cost of errors is
minimized and
learning by doing is implemented. The “Project Team Builder
(PTB)”
simulator is described next with a focus on the main features of
this SBT tool.
This is followed by two specific examples based on our
experience using
Simulation Based Training and PTB in the Global Network for
Advanced
Management (GNAM) New Product Development (NPD) Course
and in a
Project Management course at Columbia University, School of
Engineering.
It goes without saying that the huge body of knowledge in the
area of project
management cannot be condensed into a single book. Over the
past 25 years
alone, much has been written on the subject in technical
journals, textbooks,
company reports, and trade magazines. In an effort to cover
some of this
material, a bibliography of important works is provided at the
end of each
chapter. The interested reader can further his or her
understanding of a
particular topic by consulting these references.

TEAM PROJECT* Thermal
Transfer Plant
* The authors thank Warren Sharp and Ian St. Maurice for their
help in
writing this case study.
Introduction
To exercise the techniques used for project planning and
control, the reader is
encouraged to work out each aspect of the thermal transfer plant
case study.
At the end of each chapter, a short description of the relevant
components of
the thermal transfer plant is provided along with an assignment.
If possible,
the assignment should be done in groups of three or four to
develop the
interpersonal and organizational skills necessary for teamwork.
Not all of the information required for each assignment is given.
Before
proceeding, it may be necessary for the group to research a
particular topic
and to make some logical assumptions. Accordingly, there is no
“correct
solution” to compare recommendations and conclusions. Each
assignment
should be judged with respect to the availability of information
and the force
of the underlying assumptions.
Total Manufacturing

Solution
s, Inc.
Total Manufacturing

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