IT Project Management

IT Project Management:

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I T P r o j e c t M a n a g e m e n t :T h i r d E d i t i o nStudent Manual

IT Project Management: Third Edition

VP and GM of Courseware: Michael SpringerSeries Product Managers: Caryl Bahner-Guhin, Charles G. Blum, and Adam A. WilcoxSeries Designer: Adam A. Wilcox COPYRIGHT © 2005 Course Technology, a division of Thomson Learning. Thomson Learning is a trademark used herein under license.

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C o n t e n t s



IntroductionTopic A: About the manualTopic B: Setting your expectationsTopic C: Reviewing the course

Project management: context and processesTopic A: Introduction to project managementTopic B: The project management professionTopic C: The project management contextTopic D: An organizational viewUnit summary: Project management: context and processes

Integration managementTopic A: Project integration managementTopic B: Plan execution and change controlUnit summary: Integration management

Scope managementTopic A: Project initiationTopic B: Scope planning and scope statementTopic C: Scope verification and scope change controlUnit summary: Scope management

Time managementTopic A: Schedules and activitiesTopic B: Schedule developmentTopic C: Controlling changes to the project scheduleUnit summary: Time management

Cost managementTopic A: Components and principles of cost managementTopic B: Resource planningTopic C: Cost estimatingTopic D: Cost budgetingTopic E: Cost controlUnit summary: Cost management

Quality managementTopic A: Quality planningTopic B: Quality assuranceTopic C: Quality controlUnit summary: Quality management

Human resource managementTopic A: Organizational fundamentalsTopic B: Staff acquisitionTopic C: Team developmentTopic D: Using software to assist in human resource managementUnit summary: Human resource management

Communications managementTopic A: Communications planningTopic B: Performance reportingUnit summary: Communications management

Risk management



Topic A: Risk management planningTopic B: Risk identificationTopic C: Qualitative risk analysisTopic D: Quantitative risk analysisTopic E: Risk response planningTopic F: Risk monitoring and controlUnit summary: Risk management

Procurement managementTopic A: Procurement planning and solicitationTopic B: Source selection and contract managementUnit summary: Procurement management

Initiating, planning, and executing projectsTopic A: InitiationTopic B: PlanningTopic C: ExecutionUnit summary: Initiating, planning, and executing projects

Controlling and closing projectsTopic A: ControlTopic B: ClosureUnit summary: Controlling and closing projects

Suggested readingsTopic A: Suggested readings

Course summaryTopic A: Course summaryTopic B: Continued learning after class

Glossary

Index

I T P r o j e c t M a n a g e m e n t :T h i r d E d i t i o nIntroduction

After reading this introduction, you will know how to:

A Use Course Technology ILT manuals in general.

B Use course objectives to properly set your expectations forthe course.

C Re-key this course after class.



Topic A: About the manualCourse Technology ILT philosophyWe believe strongly in the instructor-led classroom. During class, focus on your instructor. Ourmanuals are designed and written to facilitate your interaction with your instructor, and not to callattention to manuals themselves.

We believe in the basic approach of setting expectations, delivering instruction, and providingsummary and review afterwards. For this reason, lessons begin with objectives and end withsummaries. We also provide overall course objectives and a course summary to provide both anintroduction to and closure on the entire course.

Manual componentsThe manuals contain these major components:

· Table of contents· Introduction· Units· Appendices (optional)· Course summary· Quick reference (optional)· Glossary (optional)· Index

Each element is described below.

Table of contents

The table of contents acts as a learning roadmap.

Introduction

The introduction contains information about our training philosophy and our manual components,features, and conventions. It contains objective and setup information for the specific course.

Units

Units are the largest structural component of the course content. A unit begins with a title page thatlists objectives for each major subdivision, or topic, within the unit. Within each topic, conceptualand explanatory information alternates with activities, which can be hands-on, question-and-answer,or a combination of both. Units conclude with a summary comprising one paragraph for each topic,and an independent practice activity or review questions section to help you reinforce the conceptsand skills that you’ve learned.

The conceptual information takes the form of text paragraphs, exhibits, lists, and tables. The activitiesare structured in one or two columns. In two-column activities, the left column tells you what to do,while the right column provides explanations, descriptions, and graphics.

Appendices

An appendix is similar to a unit in that it contains objectives and conceptual explanations. However,an appendix does not include activities, a summary, an independent practice activity, or reviewquestions.

Course summary

This section provides a text summary of the entire course. It is useful for providing closure at the endof the course. The course summary also indicates the next course in this series, if there is one, andlists additional resources you might find useful.



Quick reference

In computer software courses, the quick reference is an at-a-glance job aid summarizing some of themore common features of the software.

Glossary

The glossary provides definitions for all of the key terms used in this course.

Index

The index at the end of this manual makes it easy for you to find information about a particularsoftware component, feature, or concept.

Manual conventionsWe’ve tried to keep the number of elements and the types of formatting to a minimum in themanuals. We think this aids in clarity and makes the manuals more classically elegant looking. Butthere are some conventions and icons you should know about.

Convention DescriptionItalic text In conceptual text, indicates a new term or feature.

Bold text In unit summaries, indicates a key term or concept. In anindependent practice activity, indicates an explicit item thatyou select, choose, or type.

Code font Indicates code or syntax.

Longer strings of ? code will look ? like this.

In the hands-on activities, any code that’s too long to fit on asingle line is divided into segments by one or morecontinuation characters (?). This code should be entered as acontinuous string of text.

Select bold item In the left column of hands-on activities, bold sans-serif textindicates an explicit item that you select, choose, or type.

Keycaps like e Indicate a key on the keyboard you must press.

ActivitiesThe activities are the most important parts of our manuals. Depending on the subject matter, anactivity can have a one-column or two-column format.

Two-column format

In a typical two-column activity, the “Here’s how” column gives short instructions to you about whatto do. The “Here’s why” column provides explanations, graphics, and clarifications. Here’s a sample:

Do it! A-1: Creating a commission formulaHere’s how Here’s why

1 Open Sales This is an oversimplified sales compensationworksheet. It shows sales totals, commissions, andincentives for five sales reps.

2 Observe the contents of cell F4 The commission rate formulas use the name“C_Rate” instead of a value for the commissionrate.

For these activities, we have provided a collection of data files designed to help you learn each skillin a real-world business context. As you work through the activities, you will modify and update



these files. Of course, you might make a mistake and, therefore, want to re-key the activity startingfrom scratch. To make it easy to start over, you will rename each data file at the end of the firstactivity in which the file is modified. Our convention for renaming files is to add the word “My” tothe beginning of the file name. In the above activity, for example, a file called “Sales” is being usedfor the first time. At the end of this activity, you would save the file as “My sales,” thus leaving the“Sales” file unchanged. If you make a mistake, you can start over using the original “Sales” file.

In some activities, however, it may not be practical to rename the data file. If you want to retry oneof these activities, ask your instructor for a fresh copy of the original data file.

One-column format

The one-column format is typically used for question-and-answer activities. Here’s a sample:

Do it! A-2: Examining the elements of organizational structureQuestions and answers

1 Which of the following refers to the grouping of employees?

A Staff division

B Centralization

C Standardization

D The extent of control

2 What are the advantages of having a wider extent of control?

Topic B: Setting your expectationsProperly setting your expectations is essential to your success. This topic will help you do that byproviding a list of the objectives for the course.

Course objectivesThese overall course objectives will give you an idea about what to expect from the course. It is alsopossible that they will help you see that this course is not the right one for you. If you think youeither lack the prerequisite knowledge or already know most of the subject matter to be covered, youshould let your instructor know that you think you are misplaced in the class.

After completing this course, you will know how to:· Identify the elements of a project and project management framework, discuss project

management as a profession, discuss and apply a systems approach to project managementand project phases, and identify how organizational structures influence projects.

· Identify and discuss the processes involved in developing a project plan and discuss planexecution and change control.

· Identify the key elements of project scope management and tools for strategic planning andproject selection during project initiation, identify the key elements of scope planning and ascope statement, and discuss scope verification and change control as they relate to projectscope management.

· Define schedules and activities, identify activity sequencing, and discuss activity durationestimation, discuss schedule development with the help of Gantt charts, PERT, critical pathanalysis, and critical chain scheduling, and identify how to control changes to a projectschedule and use software to manage time.



· Identify the components and principles of cost management, discuss the elements of resourceplanning, discuss cost estimation and identify the techniques used for it, discuss costbudgeting and identify the techniques used it, and discuss cost control using EVA.

· Explain the processes of project quality management and describe quality planning, discussquality assurance and its importance, and discuss quality control and identify the tools andtechniques to implement it.

· Define the elements of organizational planning, discuss staff acquisition and explain how tonegotiate successfully, discuss the development of successful teams and how to motivatethem, and use software to assist in human resource management.

· Identify the key aspects of project communications planning and evaluate and measure theperformance of a project.

· Discuss and classify project risks, identify risks and explain the use of risk identificationtools, define and discuss qualitative risk analysis, discuss the steps involved in quantitativerisk analysis, discuss risk response planning, and describe how to monitor and control risks.

· Describe procurement planning, identify the tools and techniques used for procurementplanning, and describe solicitation planning and perform source selection, identify types ofcontracts, and describe contract administration and close-out.

· Discuss the early stages of the Northwest Airlines’ ResNet project in terms of projectinitiation, discuss planning a project and its application to the ResNet project, and discussproject execution and procurement of necessary resources.

· Discuss the ResNet project in terms of project control and describe project closure andexplain the lessons learned from the ResNet project.

Topic C: Reviewing the courseThis section explains what you’ll need to do in order to be able to review this course after class.

Setup instructions for reviewing the courseIf you would like to use the PowerPoint presentations for this course, you will need to perform thefollowing steps:

1 Download the PowerPoint presentations for the course to your computer.a Connect to www.courseilt.com/instructor_tools.html.b Click the link for IT Project Management to display a page of course listings, and then

click the link for Course ILT: IT Project Management, 3rd Edition.c Click the link for downloading the PowerPoint files, and follow the instructions that appear

on your screen.

U n i t 1Project management: context and processes

Unit time: 90 Minutes

Complete this unit, and you’ll know how to:



A Identify the elements of a project and project managementframework.

B Discuss project management as a profession.

C Discuss and apply a systems approach to projectmanagement and project phases.

D Identify how organizational structures influence projects.

Topic A: Introduction to project managementExplanation There has been renewed interest in project management. Until the 1980s, project management

focused primarily on providing schedule and resource data to senior managers. This process oftracking a few key project parameters is still an important element, but project management nowinvolves much more than what was believed originally. In the late 1990s, business environmentsbecame more complex than those of earlier decades. Today, new technologies have become asignificant contributor to many businesses. Computer hardware, software, and networks and the useof interdisciplinary and global work teams have radically changed the work environment. Thesechanges fueled the need for sophisticated and improved project management. Today’s corporationsrecognize the need to understand and use modern project management techniques to be successful.

Many organizations claim that using project management techniques provides them benefits such as:· Improved control of financial, physical, and human resources· Improved customer relations· Shorter development time· Low costs· High quality products and increased reliability· High profit margins· Improved productivity· Improved internal coordination· High worker morale

ProjectBefore we discuss project management, it is important that we first understand themeaning of the term project. A project is a temporary endeavor undertaken toaccomplish a unique purpose. Projects normally involve several human resources fromvarious areas performing interrelated activities. The project’s main sponsor is ofteninterested in the effective use of resources to complete the project in an efficient andtimely manner. The attributes described in the following table help to further define aproject.

Project attribute DescriptionUnique purpose Every project has a well-defined objective—a unique product,

service, or result.

Temporary A project has a definite beginning and end.

Require resources fromvarious areas

Resources include people, hardware, software, or other assets.Many projects are executed across departmental ororganizational boundaries to achieve their unique purposes. For



an IT collaboration project, human resources from technology,marketing, sales, distribution, and other areas of the companyneed to work together to ensure successful completion of theproject. The project might also hire external consultants—product vendors and consulting companies—to provide input.

Has a primary sponsor ora customer

Most projects involve many interested parties, and a key sponsor.The project sponsor usually provides the direction and fundingfor the project. For example, if a project was initiated to providedirect product sales via the Internet, the head of sales might bethe project sponsor. If a company needs to undertake severalprojects related to Internet technologies, then it might form aprogram. A program is a group of projects managed in acoordinated way. A program director provides leadership forthese projects, and the sponsors might belong to several differentbusiness areas.

Uncertainty Because every project is unique, it is sometimes difficult toclearly define the project’s objectives, the duration of the project,or the cost. This uncertainty is one of the main reasons whyproject management is challenging, especially when projectsinvolve new technologies.

Project managers

A project manager is the key to a project’s success. Project managers work with the project sponsors,the project team, and others involved in a project to ensure successful completion of the project.

Project constraints

Every project is constrained in different ways by its scope, time goals, and cost goals. Theselimitations are, sometimes, referred to in project management as the triple constraint. To create asuccessful project, scope, time, and cost must all be taken into consideration, and the project managermust balance these three constraints. To balance these, a project manager must consider the followingissues:

· Scope. What is the project goal? Which unique product or service does thecustomer or sponsor expect from the project?

· Time. How long will it take to complete the project? What is the project’sschedule?

· Cost. What is the cost involved in completing the project?

Each area—scope, time, and cost—has a target at the beginning of a project. For example, an ITcollaboration project might have an initial scope of producing a 50-page report and a 1-hourpresentation on 30 different potential IT projects. The project scope might be further defined byproviding a description of each potential project, an analysis of what other companies haveimplemented for similar projects, a time and cost estimate, and assessments of the risk and potentialpayoff as high, medium, or low. The initial time estimate for this project might be 1 month, and thecost estimate might be $50,000. These expectations provide targets for the scope, time, and costdimensions of the project.

Managing the triple constraint involves making trade-offs between scope, time, and cost goals.Because of the uncertain nature of projects and competition for resources, it’s rare that the scope,time, and cost plans will remain constant as originally predicted. The project’s sponsor, teammembers, or other interested parties might differ in their views of the project as it progresses. Forinstance, suppose the CEO has learned about the project and wants the project team to come up withat least 40 potential projects instead of 30. Should the project team try to accomplish this increase inscope without changing the cost and schedule goals? To make important decisions about scope, time,and cost goals, the project manager must negotiate with the project team and sponsor.

Although the triple constraint describes how the basic elements of a project—scope, time, and cost—are interrelated, other elements can also play significant roles. Quality is often a key factor in projects



as is customer or sponsor satisfaction. Some refer to the “quadruple” constraint of projectmanagement, including quality along with scope, time, and cost. Others believe that qualityconsiderations, including customer satisfaction, must be inherent in setting a project’s scope, time,and cost goals.

How can you avoid the problems that occur when you meet scope, time, and cost goals, but do notensure quality or meet customer requirements? The answer is good project management.

Do it! A-1: Discussing projectsQuestions and answers

1 What is a project?

2 How is working on a project different from what most people do in their day-to-day jobs?

3 Give three examples each of activities that are projects and not projects.

4 Explain in your own words what the term “triple constraint” means.

5 Give an example of the triple constraint on a real project with which you arefamiliar.

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

project activities in order to meet project requirements.”1 Project managers strive tomeet specific scope, time, cost, and quality goals of projects, and facilitate the entireprocess to meet the needs and expectations of the people involved or affected by theproject’s activities.

Exhibit 1-1 provides a framework in which to understand project management. Key elements of thisframework include the project stakeholders, project management knowledge areas, and projectmanagement tools and techniques.

Exhibit 1-1: Project management framework

Stakeholders are the people involved or affected by project activities and include the



project sponsor, project team, support staff, customers, users, suppliers, and evenopponents of the project. People’s needs and expectations are important throughout theexecution of a project. Successful project managers work on developing goodrelationships with project stakeholders to ensure that the stakeholders’ needs andexpectations are understood and met.

Knowledge areas describe the key competencies project managers must develop. The center ofExhibit 1-1 shows the nine knowledge areas of project management. These knowledge areas lead tospecific project objectives:

· Scope management involves defining and managing the work required to successfullycomplete the project.

· Time management includes estimating how long it will take to complete the work, developingan acceptable project schedule, and ensuring timely completion of the project.

· Cost management consists of preparing and managing the project’s budget.· Quality management ensures that the project will meet the stated or implied needs for which

it was undertaken.· Human resource management refers to making effective use of the resources hired for the

project.· Communications management involves generating, collecting, disseminating, and storing

project information.

· Risk management includes identifying, analyzing, and responding to risks related to theproject.

· Procurement management involves acquiring or procuring from outside the performingorganization the goods and services needed for the project.

Project integration management, the ninth knowledge area, ensures that all project elements areproperly coordinated so that project goals are achieved. This function affects and is affected by theother knowledge areas and includes making tradeoffs between competing or conflicting objectives.Project managers must have knowledge and skills in the nine areas.

Despite the advantages that project management offers, it might not guarantee success on all projects.Rather, it’s a very broad, often complex discipline. What works on one project might not work onanother; therefore, it’s essential for project managers to continue to develop their knowledge andskills. The unique nature of projects and the challenges involved in managing them helps projectmanagers hone their management skills.

Project management tools and techniques assist project managers and their teams incarrying out scope, time, cost, and quality management. Additional tools help projectmanagers and teams carry out human resource, communications, risk, procurement, andintegration management. For example, some popular time management tools andtechniques include Gantt charts, network diagrams (sometimes referred to as PERTcharts), and critical path analysis. Project management software is a tool that canfacilitate management processes in all knowledge areas.

How project management relates to other disciplines

Much of the knowledge required to manage projects is unique to project management. However, towork effectively with specific industry groups and technologies, project managers must also gainknowledge and experience in general management and understand the project’s application areas. Forexample, project managers must understand general management areas, such as organizationalbehavior, financial analysis, and planning techniques. If a project involves sales force automation, theproject manager needs to understand the sales process, sales automation software, and mobilecomputing.

Exhibit 1-2 shows the relationships between project management, general management, andapplication areas.

Exhibit 1-2: Project management and other disciplines



Although being a project manager requires knowledge and experience in general management areas,the role of a project manager differs from the role of a corporate manager or an executive. Whatdistinguishes project management from general or operations management is the nature of theprojects. Because projects are unique and temporary, project managers must focus on integrating allthe various activities required to complete the project successfully on time and within budget. Incontrast, most tasks performed by a general manager or an operations manager are repetitive andongoing day-to-day activities of an organization and do not require skills to balance scope, time, andcost factors.

General managers or operations managers also focus on a particular discipline or functional area. Forexample, a manager of an accounting department focuses on the discipline of accounting. If a projectmanager needs to manage an IT project for the accounting department, then he or she requiresunderstanding of accounting as well as IT. However, the project manager’s main job would be tomanage the project, not to perform accounting or IT functions.

Project management also requires knowledge of the particular industry or domain of the project. Forexample, this course focuses on IT projects—projects that involve computer hardware, computersoftware, and telecommunications technology. For a person with little or no knowledge in IT, it mightbe a challenge to manage a large IT project. Such a project manager might face problems whileworking with other managers and suppliers as well as with team members who have sound technicalexpertise in the required IT domains. New project managers will need to balance their time betweenacquiring IT knowledge and learning to become better project managers.

History of project management

It might be argued that the building of the Egyptian pyramids or the Great Wall of China can beconsidered examples of project management. However, most believe that the modern concept ofproject management began with the Manhattan Project, which the U.S. military led to develop theatomic bomb.

In fact, the military was the key industry behind the development of several project managementtechniques. In 1917, Henry Gantt developed the famous Gantt chart as a tool for scheduling work injob shops. Managers drew charts by hand to show tasks to be performed against a calendar timeline.This tool provided a standard format for planning and reviewing the work required for the completionof early military projects.

Today’s project managers still use the Gantt chart as the primary tool to communicate projectschedule information but, with the aid of computers, they no longer need to draw charts manually.Exhibit 1-3 displays a Gantt chart for a building construction project. This version of the chart wascreated with Microsoft Project, the most widely used project management software on the market.Note that a Gantt chart illustrates, in a calendar format, the tasks that need to be done and the time,or duration, needed to perform these tasks. A Gantt chart can also display the actual time taken tocomplete tasks, which helps project managers measure performance.

Exhibit 1-3: Sample Gantt chart in Microsoft Project

Another type of graphical project representation is a network diagram. Network diagrams display aproject as a flowchart. These diagrams help managers model the relationships among project tasks,which allow them to create realistic schedules.

Network diagrams were first used in 1958 for the Navy Polaris missile and submarine project.Exhibit 1-4 displays a network diagram created using Microsoft Project. Note that the diagramincludes arrows that show the related tasks and the sequence in which tasks must be performed. Theconcept of determining relationships among tasks is key to improving project scheduling. Thisconcept allows you to find and monitor the critical path—the series of tasks that dictates thecompletion date for the project.

Exhibit 1-4: Sample Network Diagram

By the 1970s, the military had begun to use software to manage large projects. Early project



management software products were very expensive and ran on mainframe computers. For example,Artemis was an early project management software product that helped managers analyze complexschedules for designing aircraft. A full-time person was often required to run the complicatedsoftware and expensive pen plotters were used to draw network diagrams and Gantt charts. Ascomputer hardware developed, and software became user-friendly, project management softwarebecame less expensive, easier to use, and more popular. Today, many different industries use projectmanagement software on all types and sizes of projects. New software makes basic tools, such asGantt charts and network diagrams, inexpensive, easy to create, and available for update.

In the latter part of the 20th century, people in every industry began to investigate and apply differentaspects of project management to their projects. The sophistication and effectiveness with whichproject management tools are being applied and used today is influencing the way companiesconduct business, use resources, and respond to market requirements. The job title “project manager”can describe the role leading the construction of a new sports arena, planning a fund-raiser for acharitable organization, or managing the development of an electronic commerce application. Allthese examples illustrate one key point: no matter what industry, you need to understand and resolveproblems if you are to be a project manager. A project manager’s real challenge is to understand theconcepts of project management and determine the tools and techniques to be applied on specificprojects.

Do it! A-2: Discussing project managementQuestions and answers

1 What are the key elements of the project management framework?

2 What are the knowledge areas required for project management?

3 How does project management differ from general management?

4 Why do you think so many IT projects are unsuccessful?

Topic B: The project management professionExplanation As the year 2000 approached, there was unprecedented demand for other types of IT projects, such as

projects meant to exploit Web-based applications, take advantage of fast telecommunicationtechnologies, and establish data warehousing capabilities. Experiencing the results of these demands,many companies adopted a far more rigorous approach to project management to improve the successrate of IT projects. A 2003 ComputerWorld article states that since 2000, money has gone elsewhere,leading to a lack of in-house IT project management skills.2 Consequently, there is an increasingneed for people to learn more about IT and the skills and expertise required to be project managers ofIT projects.

Project management careersMost IT projects require human resources to work in various roles, and the key role is that of aproject manager. Some project managers might start working in that role very early in their careers,but the general understanding is that to be a project manager, an aspirant requires several years of



experience and vast technical knowledge. Although this might be true for project managers requiredto handle large, complex, and expensive projects, many IT projects are led by not-so-experiencedproject managers.

There is a demand for efficient and competent project managers. The Project Management Institute(PMI), an international professional society for project managers, continues its fast-paced growth. Atthe beginning of 2001, the organization included over 70,000 members worldwide. Presently, thereare in excess of 100,000 PMI members, with many others joining PMI to pursue the PMPcertification Membership. Statistics from PMI indicate that the Computers/Software/DP and ITindustries are the top two industry areas among PMI members, with about 15,000 and 12,000members, respectively, in each industry category.3

In the 1990s, many companies began developing project offices to enhance project managementexpertise in their organizations and create a formal career path for project managers. Many colleges,universities, and firms now offer courses related to various aspects of project management. Theproblems in managing projects, the publicity about project management, and the belief that it is a keyrole that maximally impacts projects are all contributing to the growth of this field.

In 2004, with the threat of offshore outsourcing of jobs, good project management is critical. In theComputerWorld article “It’s IT’s Turn,” the author suggests that while outsourcing is likely tocontinue, we’re now able to identify which projects do and don’t make sense to outsource.4 This,combined with a transition in company focus from simple cost-cutting to revenue growth, will keepmany critical projects in-house.

Project management certification

Professional certification is an important factor in recognizing and ensuring quality in aprofession. PMI provides certification as a Project Management Professional (PMP) toindividuals who document sufficient project experience, follow the PMI code of ethics,and demonstrate knowledge about project management by scoring high in acomprehensive examination. Foote Partners LLC, an IT workforce research company,assesses the skills and pay of more than 35,000 IT professionals in over 1,800 NorthAmerican and European companies. In a 2003 survey, the company found that thePMP certification provides the best bonuses for IT professionals, averaging 15% ofbase pay.

The number of aspirants earning certification in project management continues to be on the rise. In1993, there were only about 1,000 certified project management professionals, whereas, by the end of2000, the number had grown to approximately 28,000. In Jan 2004, the number was 73,263 PMP-certified professionals throughout the world.

As IT projects become more complex and global in nature, the need for people with demonstratedknowledge and skills in project management will continue to grow. Just as passing the CPA exam isa standard for accountants, passing the PMP exam is becoming a standard for project managers.Some companies are requiring that all project managers be PMP certified. Project managementcertification is also enabling professionals in the field to share a common base of knowledge. Forexample, any PMP can list, describe, and use the nine project management knowledge areas. Sharinga common base of knowledge is important because it helps advance the theory and practice of projectmanagement.

International Data Corporation conducted a study in 1995 (on behalf of Drake Prometric, the IBMCorporation, Lotus Development Corporation, and Microsoft) to learn whether a company’s ITsupport function was more productive when the staff included a high percentage of professionallycertified employees. Certification was defined as including technical expertise in products, such asNT or Lotus Notes, or broader certification in areas such as data processing or project management.The study found that companies supporting certification tended to operate in more complex ITenvironments and were more efficient than companies not supporting certification.

Code of ethics

Professional ethics constitute an important element of all professions. PMI developed a projectmanagement professional code of ethics that all project managers must sign in order to becomecertified project management professionals. PMI states that it is vital for all PMPs to conduct theirwork in an ethical manner. Doing so helps the profession earn the confidence of the customers,



employers, employees, and project team members. The following list is excerpted from the code ofethics for the project management profession.

As professionals in the field of project management, PMI members pledge to uphold and abide by thefollowing:

· I will maintain high standards of integrity and professional conduct.· I will accept responsibility for my actions.· I will continually seek to enhance my professional capabilities.· I will practice with fairness and honesty.

· I will encourage others in the profession to act in an ethical and professional manner.5

Do it! B-1: Discussing project management careers and certificationQuestions and answers

1 List some advantages of joining a group such as the Project ManagementInstitute.

2 What is PMP certification?

3 What is the code of ethics to be followed by PMPs?

Project management softwareExplanation The project management and software development communities responded to the need to provide

additional software to assist in managing projects. ALLPM.COM, an Internet site that publishesproject management information and resources for IT professionals, provides information on morethan 100 products that can help manage projects.6 Deciding on the project management software tobe used is an important decision. This section provides a brief summary of the basic types of projectmanagement software and includes references for finding more information.

Many project managers use basic productivity software, such as Microsoft Word or Excel, to performproject management functions, such as determining project scope, time, and cost, assigning resources,and preparing project documentation. Project managers often use this software instead of specializedproject management software because they are familiar with the productivity software. However,hundreds of different project management software tools provide specific functionality for managingprojects. These project management tools can be divided into three general categories based on theirfunctionality and price.

· Low-end tool. These tools provide basic project management features andcost less than $200 per user. They are recommended for small projects and



single users. Most of these tools allow users to create Gantt charts, a taskthey cannot perform by using current productivity software. For example,Milestones Simplicity by KIDASA Software, Inc. has a Schedule SetupWizard interface that describes simple steps to produce a Gantt chart. For$49 per user, this tool also includes a large assortment of symbols, flexibleformatting, an outlining utility, and an Internet Publishing Wizard.7 Anotherproduct, called “How’s it going?” was written in Microsoft Access 97 byLogicAbility. For $145 per individual user, this tool includes an online guideand templates for many project management deliverables; reports for projecttracking, status reporting, and budgeting; time reporting and resourcemanagement features; and scheduling features for creating Gantt charts andperforming critical path analysis.8

· Midrange tools. A step up from low-end tools, midrange tools are designedto handle large and multiple projects and multiple users. All these tools cancreate Gantt charts and network diagrams and can assist in critical pathanalysis, resource allocation, project tracking, and status reporting. Pricesrange from about $200 to $500 per user. Several of these tools requireadditional server software for using workgroup features. Microsoft Project isstill the most popular project management software. Microsoft ProjectServer 2003, a companion product, facilitates collaboration andcommunication of project information over a corporate intranet. Also,Microsoft Office InfoPath allows you to initiate projects in Project Server2003. Other companies that sell midrange project management tools includeArtemis, PlanView, Primavera, RightWare™ Inc, Providence Systems, andWelcom.

· High-end tools. Another category of project management software includes high-end tools,sometimes referred to as enterprise project management software. These tools provide robustcapabilities to handle very large projects, dispersed workgroups, and enterprise functions thatsummarize and combine individual project information to provide an enterprise view of allprojects. These products are licensed on a per-user basis. One example, the AdvancedManagement Solutions (AMS) product AMS REALTIME interfaces with midrange tools, suchas Microsoft Project and Primavera Project Planner. It also offers a complete suite ofapplication programming interfaces (APIs) to enable integration with other businessinformation systems.9 Several companies that provide midrange tools, including Microsoft, arealso starting to offer enterprise versions of their software.

Do it! B-2: Discussing project management softwareQuestions and answers

1 Why do project managers prefer to use productivity software instead ofspecialized project management software?

2 On what basis are project management tools divided into various categories?What are these categories of tools?

3 Make a list of the tools that you use in your organization for projectmanagement.



Topic C: The project management contextExplanation Many theories and concepts of project management are easy to understand. However, it might be

difficult to implement them in real-life projects. Project managers must consider many differentcomponents when managing projects. This topic discusses two of these components: using a systemsapproach and following a project life cycle.

A systems approachOrganizations cannot run projects in isolation. Therefore, projects must operate withina broad organizational environment, and project managers need to consider projectswithin this broad organizational context. To handle complex situations effectively,project managers need to take a holistic view of a project and understand how itimpacts the larger organization. Taking this type of holistic view is called systemsthinking.

The term systems approach emerged in the 1950s to describe a holistic and analyticalapproach to solving complex problems that includes using a systems philosophy,systems analysis, and systems management. A systems philosophy is an overall modelfor thinking about things as systems. Systems are sets of interacting componentsworking within an environment to fulfill a purpose. For example, the human body is asystem composed of many subsystems, such as the brain, the skeletal system, thecirculatory system, and the digestive system. Systems analysis is a problem-solvingapproach that requires defining the scope of the system to be studied, dividing it intocomponents, and identifying and evaluating its problems, opportunities, constraints, andneeds. The analyst then examines alternative solutions for improving the currentsituation, identifies an optimum (or at least satisfactory) solution or action plan, andexamines the plan against the entire system. Systems management addresses thebusiness, technological, and organizational issues associated with making a change to asystem.

Using a systems approach is critical to successful project management. Senior managers and projectmanagers must identify key business, technological, and organizational issues related to each projectso that they can identify and satisfy key stakeholders and take actions in the best interest of theorganization.

Many IT professionals become enamored with the technology and day-to-day problem solvingapproach while working on information systems. They tend to ignore important business issues, suchas does it make financial sense to adopt this new technology or should the software be developed in-house or purchased off-the-shelf? Using a more holistic approach helps project managers integratebusiness and organizational issues into their planning. It also helps them look at projects as a seriesof interrelated phases. By adopting this approach, you can do a better job of ensuring project success.

Do it! C-1: Discussing systems approachQuestions and answers

1 What does it mean to take a systems view? How does taking a systems viewapply to project management?

2 In what way(s) is a systems approach to project management beneficial? Whodoes it benefit?



Project phases and the project life cycleExplanation Because projects operate as part of a system and involve uncertainty, it is a good

practice to divide projects into several phases. A project life cycle is a collection ofproject phases, which might vary with the project or industry, but some general phasesinclude concept, development, implementation, and close-out. The first two phases(concept and development) focus on planning and are often referred to as projectfeasibility. The last two phases (implementation and close-out) focus on delivering theproducts and are often referred to as project acquisition. A project must successfullycomplete each phase before moving on to the next. This project life cycle approachprovides better management control and appropriate links to the ongoing operations ofthe organization.

Exhibit 1-5 provides a summary framework for the general phases of the project life cycle. In theconcept phase of a project, managers describe the project briefly—that is, they create a high-level orsummary plan for the project, which describes the need for the project and basic underlying concepts.They also develop a preliminary cost estimate in this first phase and an overview of the workinvolved. Project work is usually defined in a work breakdown structure (WBS)—an outcome-oriented document that defines the total scope of the project. At the end of the concept phase, acommittee is able to deliver a report and presentation on its findings. The report and presentation areexamples of a deliverable—a product created as part of a project.

Exhibit 1-5: Phases of the project life cycle

After the concept phase is completed, the development phase begins. In this phase, the project teamcreates a detailed project plan, an accurate cost estimate, and a thorough WBS. This phased approachminimizes the time and money spent performing irrelevant tasks. A project idea must pass theconcept phase before evolving during the development phase.

The third phase of the project life cycle is called implementation. In this phase, the project teamdelivers the required products, creates a definitive or relatively accurate cost estimate, and providesperformance reports to stakeholders. The bulk of a project team’s efforts and most of the moneyallocated for the project are spent during the implementation phase.

The last phase of the project life cycle is called close-out. In the close-out phase, all the work iscompleted and the customer confirms acceptance of the entire project. The project team documentsits experiences on the project in a lessons-learned report. The project team might also want to sharethese lessons learned with other project teams that might be considering a similar project.

Project life cycles

You learned about various project phases developed by organizations while working on a project.Collectively, the project phases are known as the Project Life Cycle (PLC). Some of the commoncharacteristics of the PLC are as follows:

· Cost and staffing levels are low at the beginning, higher toward the end, and decrease rapidlyas a project heads toward its conclusion.

· The probability of successful completion is the lowest, and therefore, risk and uncertainty arethe highest at the beginning. This probability of successful completion of a project increasesas the project gains momentum.

· The ability of stakeholders to influence the final characteristics and the final cost of a projectis high at the start and low at the end of the PLC.

Most IT professionals are familiar with the concept of a Systems Development LifeCycle (SDLC), which is a framework for describing the phases involved in developingand maintaining information systems. Common names for these general phases areinformation systems planning, analysis, design, implementation, and support. Somepopular models of a systems development life cycle include the waterfall model, thespiral model, the incremental release model, the Rapid Application Development(RAD) model, and the prototyping model.· The waterfall model has well-defined, linear stages of systems development and support.



· The spiral model was developed based on experience with various refinements of thewaterfall model as applied to large government software projects. It recognizes that mostsoftware is developed using an iterative or spiral approach rather than a linear approach.

· The incremental release model provides for progressive development of operational software,with each release providing added capabilities.

· The RAD model, used to produce systems quickly without compromising quality, includesfour phases—requirements planning, user design, construction, and cutover. RAD tools areavailable to facilitate rapid prototyping and code generation.

· The prototyping model is used to develop software prototypes to clarify user requirements foroperational software.

These models are examples of product life cycles, and most introductory management informationsystems texts describe each of them in detail. The type of software and complexity of the informationsystem being developed determines the model in use. Exhibit 1-6 shows Boehm’s famous spiralmodel of software development.10 The spiral model illustrates how complex the process ofdeveloping an information system can be.

Exhibit 1-6: Spiral model of software development

It is important not to confuse the project life cycle with the product life cycle. The project life cycleapplies to all projects, regardless of the products being created. On the other hand, product life cyclemodels vary considerably based on the nature of the product being developed.

Most large IT products are developed as a series of projects. For example, the systems planningphase for a new information system can include a project to hire an external consulting firm to helpidentify and evaluate potential strategies for developing a particular business application, such as anew order processing system or a general ledger system. It can also include a project to develop,administer, and evaluate a survey of users’ opinions on the current information systems used forperforming a business function in the organization. The systems analysis phase might include aproject to create process models for specific business functions in the organization. It can also includea project to create data models of existing databases, related to the business function and application,in the company. The implementation phase might include a project to hire contract programmers tocode a part of the system. The support phase might include a project to develop and run severaltraining sessions for users of the new application. All these examples show that large IT projects areusually composed of several small projects.

When developing information systems, project management is a cross-life cycle activity that isperformed in all the product phases of developing information systems. Because project managementneeds to occur during all phases of the systems development life cycle, it is critical for ITprofessionals to understand and practice good project management skills.

Just as a project has a life cycle, so too does a product. IT projects help produce products, such asnew software, hardware, networks, research reports, and training material on new systems.Understanding the product life cycle is just as important to good project management asunderstanding the phases of the project life cycle.

The importance of project phases and management reviews

Given the complexity and importance of many IT projects and their resulting products,it is important that project managers spend time reviewing the progress of theseprojects. A project should successfully pass through each project phase beforecontinuing to the next. A management review should occur after each phase to evaluateprogress, probable success, and continued compatibility with organizational goals.These management reviews, called phase exits or kill points, are essential for runningprojects as planned and determining if they should be continued, redirected, orterminated. Recall that projects are just one part of the entire system of anorganization. Changes in other parts of the organization might affect projects, and thatmight in turn, affect other departments of the organization. By breaking projects intophases, senior managers can make sure that the projects are compatible with the goalsof the company.



Do it! C-2: Discussing project phases and project life cyclesQuestions and answers

1 What are the four phases of the project life cycle?

2 What is the difference between a project life cycle and a product life cycle?

3 What is a PLC? What is the importance of this approach?

4 What are the benefits of a management review?

Project management process groupsExplanation Project management consists of nine knowledge areas: integration, scope, time, cost, quality, human

resource, communications, risk, and procurement. Another important concept related to projectmanagement is the five project management process groups: initiating, planning, executing,controlling, and closing. It is important to understand each project management process group andhow the groups relate to the nine knowledge areas.

Project management is an integrated endeavor so that decisions and actions taken in one knowledgearea at a specific time affect other knowledge areas. Managing these interactions often requiresmaking trade-offs among the project objectives of scope, time, and cost—the triple constraint ofproject management. A project manager might also need to make trade-offs between knowledgeareas, such as between risk and human resources. As a consequence, you can view projectmanagement as a number of interlinked processes. A process is a series of actions directed towardachieving a particular result. Project management process groups progress from initiating processesto planning, executing, controlling, and closing processes.

Initiating processes include actions to begin or end projects and project phases. Several tasks must beperformed to initiate a project in the concept phase. You need to define the business need for theproject and ensure that the project has a sponsor and project manager. Initiating processes take placeduring each phase of a project. For example, project managers and teams should examine thebusiness need for the project during every phase of the project life cycle to determine if the projectmust be continued as planned.

Planning processes include devising and maintaining a workable model to meet the business need forwhich the project was undertaken. Project plans are created to define each knowledge area as itrelates to the project at that point in time. For example, plans must be developed to define the scopeof the project, the schedule for various project activities, the key team members responsible, theapproximate costs, and the resources to be procured. To account for changing conditions on theproject and in the organization, project teams often need to revise plans during each phase of theproject life cycle.

Executing processes include coordinating between team members and other resources to carry out theproject plans and develop the products or deliverables. Examples of executing processes includedeveloping the project team, providing leadership, assuring project quality, disseminatinginformation, procuring necessary resources, and delivering the work.

Controlling processes ensure that project objectives are met. The project manager and team membermonitor and measure progress against plans and take corrective action, when required. A commoncontrolling process is to conduct performance and status reviews. If changes are necessary, project



managers must identify, analyze, and manage the changes.

Closing processes include formalizing acceptance of the phase or project and bringing it to an end.Administrative activities are involved, such as archiving project files, documenting knowledgeacquired, and receiving formal acceptance of work delivered as part of the phase or project.

Exhibit 1-7 shows the project management process groups and their inter-relationships in terms oftypical level of activity, time frame, and overlap. Notice that the process groups are not discrete, one-time events. They occur at varying levels of intensity throughout each phase of a project. The level ofactivity and time and the length of each process group vary for every project. The executingprocesses require the maximum resources and the largest amount of time, followed by planning. Theinitiating and closing processes are the shortest and require the least amount of resources and time.However, every project is unique, so there can be exceptions.

Exhibit 1-7: Overlap of process groups in a phase (source: PMBOK Guide, 2000, 31)

Each of the five project management process groups is characterized by the completion of specifictasks. During initiating processes for a new project, the organization recognizes that a new projectexists. This is accomplished by completing a stakeholder analysis, requirements document, andfeasibility study. These reports outline a project’s potential supporters and opponents, its definition,and its high-level goals, scope, deliverables, deadlines, and resources. The main outcome of theinitiating process at the beginning phase is the creation of a project charter and the selection of aproject manager.

Key outcome of the planning process includes completion of a work breakdown structure, projectschedule, and project budget. Planning is especially important for IT projects. If you have worked ona large IT project involving new technology, you would know the saying “A dollar spent up front inplanning is worth 100 dollars spent after the system is implemented.”

The executing process involves taking the actions necessary to ensure that the work described in theplanning activities will be completed. The main outcome of this process is the delivery of the productof the project. For example, if an IT project involves providing new hardware, software, and training,the executing processes include leading the project team and other stakeholders to purchase thehardware, develop and test the software, and deliver and participate in training. This process groupoverlaps with all the other process groups and requires the maximum resources to be accomplished.

Controlling is the process of measuring progress towards the project objectives, monitoring deviationfrom the plan, and taking corrective action to match progress with the plan. The outcome ofcontrolling is a completed project that successfully delivers the agreed upon project scope withintime, cost, and quality constraints. If changes need to be made to project objectives or plans,controlling processes ensure that they help meet stakeholder needs and expectations. Controllingprocesses overlap all the other process groups because changes can be made at any time.

During the closing processes, the project team works to gain acceptance of the end product and bringthe phase or project to an end. Key outcomes include formal acceptance of the work and creation ofclosing documents, such as a project audit and a lessons-learned report.

You can map the main activities of each project management process group, which apply to an entireproject or a phase of a project, into the nine project management knowledge areas. The followingtable provides a big picture of the relationships among the 39 project management activities, the timein which they are completed, and their corresponding knowledge areas. The activities listed in thetable are the main processes for each knowledge area listed in the PMBOK Guide 2000. Notice thatthe majority of project management activities occur as part of the planning process group. To succeedat performing unique and new activities, project teams do adequate planning.

Knowledgearea

Project process groups

Initiating Planning Executing Controlling Closing

Integration Project plandevelopment

Project planexecution

Overall changecontrol

Scope Initiation Scope planning Scope verification Scope change



control

Time Activity definition Schedule control

Activity sequencing

Activity durationestimating

Scheduledevelopment

Cost Resourceplanning

Cost control

Cost estimating

Cost budgeting

Quality Quality planning Quality assurance Quality control

Human resources Organizationalplanning

Teamdevelopment

Staff acquisition

Knowledgearea

Project process groups

Initiating Planning Executing Controlling Closing

Communications Communicationsplanning

Informationdistribution

Performancereporting

Administrativeclosure

Risk Risk identification Risk responsecontrol

Risk quantification

Risk responsedevelopment

Procurement Procurementplanning

Solicitation Contract close-out

Solicitation planning Source selection

Contractadministration

Do it! C-3: Discussing project process groupsQuestions and answers

1 What are the project management process groups?

2 On which processes should the most team members spend the maximum time?

3 How do the project management process groups differ from the processes withwhich most IT professionals are familiar? How are they similar? How are theyrelated?



Topic D: An organizational viewExplanation The systems approach to project management requires that project managers always view their

projects in the context of the organization. Organizational issues are often the most difficult part ofmanaging projects. For example, many might believe that most projects fail for political reasons.Project managers frequently do not spend enough time identifying all the stakeholders involved inprojects, especially the people opposed to the projects. To improve the success rate of their projects,it is important that project managers develop a better understanding of the personnel as well asorganizations.

Organizations can be viewed as containing four different frames: structural, human resources,political, and symbolic.

· The structural frame describes how an organization is structured (as depicted inan organizational chart) and focuses on the roles and responsibilities of variousgroups toward meeting the goals and policies set by senior managers. Thisframe is rational and focuses on coordination and control. For example, a keyissue in IT related to the structural frame is whether IT personnel should becentralized to one department or decentralized across several differentdepartments.

· The human resources frame focuses on correlating the needs of an organizationwith those of its employees. This frame recognizes that there are oftenmismatches between these two sides and works to resolve potential problems.For example, many projects might be more efficient for an organization ifpersonnel worked 80 or more hours a week for several months. However, such aroutine would most likely conflict with the personal lives of the employees.Important issues in IT related to this frame are the shortage of workers and theunrealistic schedules for many projects.

· The political frame addresses organizational and personal politics. Politics inorganizations might take the form of competition between groups or individualsfor power and leadership. The political frame assumes that organizations arecoalitions composed of varied individuals and interest groups. Often importantdecisions need to be made based on the allocation of scarce resources.Competition for scarce resources leads to conflicts and power tactics. Powerobviously improves a group’s or an individual’s ability to use a situation to theiradvantage. Project managers must discourage politics and power games in theirteams. Important issues in IT related to the political frame are power shifts fromcentral functions to operating units or from functional managers to projectmanagers.

· The symbolic frame focuses on symbols and meanings. What is most importantabout any event in an organization is not that it happened, but what it means.Was it a good sign that the CEO attended a kickoff meeting for a project or wasit a threat? The company’s culture is also related to this frame. How do peopledress? How many hours do they work? How do they run meetings? Importantsymbolic frame issues in IT are the interpretations of work in high-technologyenvironments and the need for IT workers as either key partners in the businessor a necessary cost.

Organizational structureDiscussions in organizations also focus on the organizational structure. There are three



general classifications of organizational structure: functional, project, and matrix.Exhibit 1-8 displays these three structures. A functional organization is a hierarchicalstructure in which functional managers or vice presidents in specialties, such asengineering, manufacturing, IT, and human resources (HR), report to the chiefexecutive officer (CEO). Their teams have specialized skills in their respectivedisciplines. For example, most colleges and universities have strong functionalorganizations. The faculty in the Business department teaches only business courses;the faculty in the History department teaches only history; the faculty in the Artdepartment teaches only art, and so on.

A project organization also has a hierarchical structure, but instead of functional managers or vicepresidents reporting to the CEO, project managers do so. Their teams have a range of skills requiredto complete their particular projects. Many large defense organizations use project structures. Forexample, major aircraft corporations usually have vice presidents in charge of each aircraft thecorporation produces. Many consulting firms also follow a project organizational structure and hireresources to work on specific projects.

A matrix organization represents the middle ground between functional and project structures.Personnel often report to both a functional manager and one or more project managers. For example,IT personnel at 3M (and many other companies) often split their time between two or more projects,but they report to their manager in the IT department. Project managers in matrix organizations haveteams from various functional areas working on their projects, as shown in Exhibit 1-8. Matrixstructures can be strong, weak, or balanced, based on the amount of control exercised by the projectmanagers.

Exhibit 1-8: Functional, project, and matrix organizational structures

Do it! D-1: Discussing organizational structuresQuestions and answers

1 What are the four frames of organizations?

2 What are the three general types of organizational structures?

3 Which type of organizational structure can be strong, weak, or balanced basedon the amount of control exercised by the project managers?

Influence of an organizational structure on projectsExplanation The following table summarizes how organizational structure influences projects and project

managers.11 Project managers are designated the maximum authority in a project organization andthe least authority in a functional organization. It is important that project managers understand thestructure of their organization. For example, in a functional organization, you are leading a projectthat requires strong support from several different functional areas, you should ask for sponsorshipfrom the senior management. This sponsor should solicit support from all functional managers toensure that they cooperate on the project and that qualified resources are available to work as needed.The project manager might also ask for allocation of additional budget to be able to pay for project-related trips, meetings, and training or to provide financial incentives to those supporting the project.

Projectcharacteristics

Organization type



Functional Matrix Project

Weakmatrix

Balancedmatrix

Strongmatrix

Project manager’sauthority

Little or none Limited Low tomoderate

Moderateto high

High toalmost total

Percent ofperformingorganization’spersonnel assigned full-time to project work

Virtually none 0–25% 15–60% 50–95% 85–100%

Project manager’srole

Part-time Part-time Full-time Full-time Full-time

Common title forproject manager’srole

ProjectCoordinatoror ProjectLeader

ProjectCoordinatoror ProjectLeader

ProjectManager orProjectOfficer

ProjectManageror ProgramManager

ProjectManageror ProgramManager

Project managementadministrative staff

Part-time Part-time Part-time Full-time Full-time

Even though project managers are designated the maximum authority in a project organizationstructure, this type of organization is often inefficient for a company. Because resources are assignedfull-time to the project, they might not always be fully utilized. Project organizations might also missout on economies of scale available by pooling of requests for materials with other projects.Disadvantages such as these illustrate the benefit of using a systems approach to managing projects.When project managers use a systems approach, they are better able to make decisions that addressthe needs of the organization.

Stakeholder management

Recall that project stakeholders are involved in or affected by project activities. Stakeholders can beinternal or external to the organization and might be directly involved in the project or affected by it.Internal project stakeholders include the project sponsor, project team, support staff, and internalcustomers. Other internal stakeholders include senior management, other functional managers, andother project managers. Given that organizations have limited resources, projects affect seniormanagement, other functional managers, and other project managers because they use some of theorganization’s limited resources. Therefore, while additional internal stakeholders might not bedirectly involved in the project, they remain the project’s stakeholders because the project affectsthem in some way.

External project stakeholders include the project’s customers (if they are external to the organization),competitors, suppliers, and other external groups who might be involved in or affected by the project,such as government officials or concerned citizens. Because the purpose of project management is tomeet project requirements and the requirements of stakeholders, it is critical that project managersspend adequate time identifying, understanding, and managing relationships with all projectstakeholders. Using the four organizational frames to think about project stakeholders can help tomeet their expectations.

Senior management commitment

A crucial factor in helping project managers successfully lead projects is the level of commitment andsupport they receive from senior management. In fact, without commitment from senior management,many projects might fail. As described earlier, projects are part of the larger organizationalenvironment, and many factors that might affect a project are out of a project manager’s control.Several studies cite executive support as one of the key factors associated with project success forvirtually all projects.



Senior management commitment is crucial to project managers for the following reasons:· Project managers need adequate resources. The best way to support a

project is to provide it the required money, people, resources, and visibility.If project managers have the commitment from senior management, theywill also have adequate resources to bring their projects to completion.

· Project managers often require approval for unique project needs in a timelymanner. For example, on large IT projects, senior management mustunderstand that unexpected problems might result from the nature of theproducts being produced or the skills of the team members working on theproject team. The project might need additional hardware and softwarehalfway through for proper testing, or the project manager might need tooffer special pay and benefits to attract and retain key project personnel.With senior management commitment, project managers can meet thesespecific needs in a timely manner.

· Project managers must have cooperation from other employees of theorganization. Most IT projects cut across functional areas; therefore, seniormanagement must help project managers handle the political issues thatoften arise in these types of situations. If certain functional managers do notrespond to project managers’ requests for necessary information, seniormanagement must step in to encourage functional managers to cooperate.

· Project managers many times need guidance on leadership issues. Many IT project managersmight have held technical positions but might be inexperienced as managers. Senior managersshould take the time to pass on advice about how to be good leaders. They should encouragenew project managers to develop leadership skills and allocate the time and funds to allowthem to do so.

Project managers for IT projects work best in an environment in which senior management values IT.Working in an organization that values good project management and sets standards for its use alsohelps project managers succeed.

The need for organizational commitment to IT

Another factor affecting senior management commitment to IT projects is an organization’scommitment to IT, in general. It is very difficult for an IT project to be successful if an organizationdoes not value IT. Many companies realized that IT is integral to their business and created a vicepresident or equivalent level position for the head of IT, often called the Chief Information Officer(CIO). Some companies designate employees from non-IT areas to work on large projects full-timeto increase involvement from end users of the systems. Some CEOs even take a strong leadershiprole in promoting the use of IT in their organizations.

The Gartner Group, Inc., a well-respected IT consulting firm, awarded Boston’s State Street Bankand Trust Company’s CEO, Marshall Carter, the 1998 Excellence in Technology Award. Carterprovided the vision and leadership for his organization to successfully implement new IT thatexpanded the bank’s business. The bank had to gather, coordinate, and analyze large amounts of datafrom around the world to provide new asset management services to its customers. It took the banksix years to transform State Street into a company that provides its customers state-of-the-art toolsand services. The bank’s revenues, profits, and earnings per share more than doubled during Carter’sfirst five years. A key to his success was his vision that technology is an integral part of the businessand not simply a means of automating old banking services. Carter used a highly personal style tomotivate his employees, and he often attended project review meetings to support his managers on ITprojects.12

The need for organizational standards

Another problem in most organizations is a lack of standards or guidelines forperforming project management tasks. These standards or guidelines might besimple outlines or examples of project plans and guidelines that a project managercan use to provide status information to senior managers. This standardizedinformation might be of use to many new IT project managers who are new in their



role.

Some organizations invest heavily in project management by creating a project management office orcenter of excellence. A project management office or center of excellence is an organizational entitycreated to assist project managers in achieving project goals. Rachel Hollstadt, founder and CEO of aproject management consulting firm, suggests that organizations consider adding a new position, aChief Project Officer (CPO), to elevate the importance of project management. Some organizationsdevelop career paths for project managers, while others require that all project managers obtain PMPcertification. All these examples of setting standards demonstrate an organization’s commitment toproject management.

Do it! D-2: Understanding the influence of an organizational structure onprojects

Questions and answers 1 How does a project manager’s authority vary in a project organization and a

functional organization?

2 Why is senior management commitment crucial to project managers?

Suggested skills for a project managerExplanation A good project manager requires diverse skills. Achieving high performance on IT

projects requires strong managerial skills, particularly strong communication,leadership, and political skills. Project managers also need skills in organization,teamwork, coping with pressure, and making effective use of technology.

Why do project managers need strong management skills? One reason is that to understand, navigate,and meet stakeholders’ needs and expectations, project managers need to lead, communicate,negotiate, solve problems, and influence the organization at large. They also need to be able to listenactively to what others are saying, help develop new approaches for solving problems, and persuadetheir teams to work toward achieving project goals. Project managers must lead their teams byproviding vision, delegating work, creating an energetic and positive environment, and setting anexample of appropriate and effective behavior.

Project managers must also have strong organizational skills to be able to plan, analyze, set, andachieve project goals. They must focus on teamwork skills so that the team can work effectively.They need to be able to motivate different types of team members and develop esprit de corps withinthe project team and with other project stakeholders. Most projects involve changes and trade-offsbetween competing goals, so it is important for project managers to be strong in coping skills. Projectmanagers must be flexible, creative, and sometimes, patient in working toward project goals; theymust also be active in making project needs known.

Even if organizations can find people with all these skills and characteristics, a project might stillrequire more input. Success is more likely, however, when project managers work to develop theseskills and organizations promote effective project management.

Do it! D-3: Discussing skills of a project manager



Questions and answers 1 What are the suggested skills for a project manager?

2 Why do project managers need to have organizational skills?

Developing a project management methodology for ITExplanation This unit discussed various topics, including systems thinking and systems analysis, the project life

cycle, product life cycles, management reviews, the need for understanding organizations, and projectmanagement process groups. Many organizations talk about project management and spend muchtime and expense in training efforts, but after training, most trainees are not sure how to apply goodproject management techniques. As a result, some organizations develop their own internal IT projectmanagement methodologies.

For example, after implementing a SDLC at Blue Cross Blue Shield of Michigan, the methods areabecame aware that developers and managers were performing different types of tasks even whenworking on IT projects. Deliverables were often missing or looked different from project to project.The methods area noticed the need to ensure consistency and define standards to guide both new andexperienced project managers. Senior management decided to authorize funds to develop amethodology for project managers that might also become the basis for IT project managementtraining within the organization. This initiative was viewed as part of an overall effort to help raisethe company’s Software Capability Maturity Model level.

Blue Cross Blue Shield launched a three-month project to develop its own project managementmethodology. Some of the project team members already carried the PMP certification, so theydecided to base their methodology on the PMBOK Guide, making the required adjustments to bestdescribe how their organization managed IT projects. Exhibit 1-9 shows a one-page picture of theresulting IT project management processes and the information flow among them.13

Exhibit 1-9: IT project management methodology at Blue Cross Blue Shield

The Blue Cross Blue Shield team realized that some processes in the PMBOK Guide would have tobe dropped or de-emphasized to fit their organization’s needs. For example, in contrast to someindustries, the overriding financial investment in software development was made in salaries, not inmaterials. In addition, at Blue Cross Blue Shield, negotiations with contracting firms were not madein the IT area. Therefore, most procurement functions were used by other processes, such as ScopePlanning and Definition and Resource Planning.

Additional processes were also added. For example, to keep track of the large amount ofdocumentation necessary for an IT project, the team decided to develop a process for maintainingand updating a project workbook that will serve as an information resource for team members and aprinted record of project activities. Project Book Records was, therefore, added as a separate processunder Information Distribution. Another new process, Issue Control, was added because of itsimportance to IT projects. Problems occur in IT projects, in part because of the inherent complexityof information systems and the rapidly changing technology.

The team also decided to combine the PMBOK Guide’s processes of Activity Sequencing, ActivityDefinition, Activity Duration Estimating, and Schedule Development into one process that was to becalled Work Plan Development. In addition, to enhance usability and simplify the overall process, theteam combined the PMBOK Integrated Change Control, Scope Change Control, Schedule Control,and Cost Control processes into a process called Project Change Control.

Blue Cross Blue Shield wanted its IT project management methodology to work with any of theSDLC models. This forced team members involved in software development phases to separate plans



for product creation from the efforts to manage development activities. Understanding the differencebetween the SDLC and the methodology of IT project management lead to a paradigm shift for someteam members who were performing the dual role of developer and project manager. Today, BlueCross Blue Shield’s IT project management methodology is the basis for its training programs and isused to develop and implement its IT projects.

The project management process groups—initiating, planning, executing, controlling, and closing—provide a useful framework for understanding project management. They apply to most projects (ITand non-IT) most of the time, and along with the project management knowledge areas, they helpproject managers take into account the big picture of managing a project in their organizations.

Do it! D-4: Developing a project management methodologyExercises

1 Why is an IT project management methodology needed?

2 What is the importance of project process groups in project managementmethodology?

3 Analyze the Blue Cross Blue Shield of Michigan example of IT projectmanagement methodology. Have you ever developed a methodology of thesame kind in your organization?

Unit summary: Project management: context andprocesses

Topic A In this topic, you learned that a project is a temporary endeavor undertaken to accomplish a uniquepurpose. Then you learned that the triple constraint of a project is managing scope, time, and costdimensions. Further, you learned that project management is the application of knowledge, skills,tools, and techniques to project activities to meet or exceed stakeholder needs and expectations.Finally, you examined the framework for project management, including project stakeholders,project management knowledge areas, and project management tools and techniques.

Topic B In this topic, you learned about project management as a profession, some of the criteria for theProject Management Professional (PMP) certification, and the different software packages usedfor project management.

Topic C In this topic, you learned that a systems approach is critical to successful project management. Youalso learned that the phases of the project life cycle are concept, development, implementation,and close-out. You learned that a systems development life cycle (SDLC) is a specific type offramework for describing the phases involved in developing and maintaining information systems.Finally, you learned the common names for the general phases in an SDLC: information systemsplanning, analysis, design, implementation, and support.

Topic D In this topic, you learned that organizations use four different frames: structural, human resources,political, and symbolic. Next, you learned that the three general classifications of organizationalstructures are functional, project, and matrix. You also learned about the potential influence ofstakeholders on projects and project management. Finally, you learned that project management is asystem of interlinked processes, and that the five process groups are initiating, planning,executing, controlling, and closing.



Independent practice activity 1 Have you used project management software? If so, list the software and for what purpose you

have used it. After reading about software tools in this unit, are there any additional tools thatmight be helpful to you?

Answers might vary.

2 Apply the information on the four frames of organizations to an IT project with which you arefamiliar. If you cannot think of a good IT project, use your personal experience in deciding whereto attend college to apply this framework. Describe, in not more than two pages, key issuesrelated to the structural, human resources, political, and symbolic frames. Which frame seemed tobe the most important and why? For example, did you decide where to attend college primarilybecause of the curriculum and structure of the program? Did you follow your friends? Did yourparents influence your decision? Did you like the culture of the campus?

Answers might vary.

Endnotes

# Reference

1 Project Management Institute (PMI) Standards Committee. A Guide to the Project Management Bodyof Knowledge (PMBOK Guide) (2000). The PMBOK Guide is a key document in the projectmanagement profession and is ANSI approved. Excerpts are available free of charge from PMI’s Website, www.pmi.org.

2 Hoffman, Thomas. “IT Departments Face a Lack of Project Management Know-how,”ComputerWorld Web site (www.computerworld.com) (August 11, 2003).

3 Project Management Institute (PMI). PMI Web site (www.pmi.org) (2001).

4 Hayes, Frank. “It’s IT’s Turn,” ComputerWorld Web site (www.computerworld.com) (December 22,2003).

5 Project Management Institute (PMI). “Member Code of Ethics”(www.pmi.org/prod/groups/public/documents/info/ap_memethstandards.pdf) (revised November2003).

6 ALLPM.com. PM Products (www.allpm.com).

7 Web Site of KIDASA Software (www.kidasa.com).

8 How’s it going? From LogicAbility (www.hows-it-going.com).

9 Advanced Management Solutions (www.amsrealtime.com).

10 Boehm, Barry. “A Spiral Model of Software Development and Enhancement,” IEEE Computer (May1988) 5, 61–72.

11 PMI Standards Committee. A Guide to the Project Management Body of Knowledge (PMBOKGuide), PMI, 2000, 19.

12 Melymuka, Kathleen. “Old Bank, New Ideas,” ComputerWorld (February 15, 1999).

13 Munroe, William. “Developing and Implementing an IT Project Management Process,” ISSIGreview(First Quarter 2001). This article can also be found online(www.course.com/downloads/mis/schwalbe/ITPMProcess.pdf).



U n i t 2Integration management



A Identify and discuss the processes involved in developinga project plan.

B Discuss plan execution and change control.

Topic A: Project integration managementExplanation Project integration management involves coordinating the eight other knowledge areas of project

management throughout a project’s life cycle. Integration management ensures that all the elementsof a project are used at the right time so that the project is completed successfully. The mainprocesses involved in project integration management include:

· Project plan development, which involves compiling the results of otherplanning processes into a consistent, coherent document, called—the projectplan.

· Project plan execution, which involves carrying out the project plan byperforming the activities it describes.

· Integrated change control, which involves coordinating changes throughout theproject.

Exhibit 2-1 provides an overview of the processes, inputs, tools and techniques, and outputs ofproject integration management. For example, inputs to project plan development include otherplanning outputs, historical information, organizational policies, constraints, and assumptions. Toolsand techniques to assist in developing a project plan include a project planning methodology,stakeholder skills and knowledge, a project management information system or project managementsoftware, and earned value management. Outputs of project plan development are the project planand supporting detail.

Exhibit 2-1: Project integration management overview

An integrating forceTo achieve project integration management, you perform management of the project scope, time,cost, quality, human resources, communication, risks, and procurement. Project integrationmanagement depends on activities from all the other eight knowledge areas. It also requirescommitment throughout the project’s life cycle from senior managers sponsoring the project.

Exhibit 2-2 provides a framework for understanding how project integration management providesthe guidelines in managing a project. Recall that projects pass through the basic phases of concept,development, implementation, and close-out. These phases are represented on the x-axis of thisexhibit, and the y-axis represents the eight other project management knowledge areas. The projectintegration management knowledge area is represented as an arrow that becomes increasingly focusedas the project progresses through its life cycle. Project integration management combines all theelements for the successful completion of the project. By ensuring good project planning, execution,and change control, project managers and their teams can meet or exceed needs and expectations of



the project’s stakeholders.

Many consider integration management to be the key to overall project success. A project managerusing project integration management must be responsible for:

· Coordinating with the teams· Defining the plans· Resolving conflicts among project goals or team members· Making final decisions· Communicating key project information to senior managers· Enabling the work required to complete a project

Exhibit 2-2: Framework for project integration management

Integration management includes interface management, which involves identifying and managingthe points of interaction between various elements of a project. The number of interfaces can increaseexponentially as the number of people involved in a project increases. Therefore, an important task ofa project manager is to establish and maintain good communication relationships acrossorganizational interfaces. The project manager must communicate well with all project stakeholders,including customers, the project team, senior managers, other project managers, and the projectopponents.

Project integration management involves integrating the other knowledge areas within a project aswell as integrating areas outside a project. Integrating across knowledge areas and across theorganization requires a good project plan. Therefore, the first process of integration management isdeveloping a good project plan.

Do it! A-1: Discussing project integration managementQuestions and answers

1 What are the main processes involved in project integration management?

2 Why is integration management considered key to overall project success?

Project plan developmentExplanation A project plan is a document used to coordinate all project planning documents and

help guide a project’s execution and control. Project plans also document assumptionsand decisions regarding choices, facilitate communication among stakeholders, definethe content, extent, and schedules of key management reviews, and provide a baselinefor progress measurement and project control. Plans should be dynamic, flexible, andsubject to change when the environment or project changes. Plans should be used byproject managers to lead project teams and assess project status.

To create a good project plan, the project manager must practice integration because he or she willrequire information from all knowledge areas. Working with the project team and other stakeholdersto create a project plan can help the project manager gain overall understanding of the project and itsexecution.



Just as projects are unique, so are project plans. A small project involving a few team membersworking together over a couple of months might use a project plan consisting of a two-pagedescription of the project along with a work breakdown structure and a Gantt chart. A large projectinvolving 100 team members working on a project that will run over three years might use a detailedproject plan. It is important to tailor project plans to fit the needs of specific projects. The plansshould guide the work so that the detail of a project plan meets the needs of the project.

There are, however, elements common to most project plans. These elements include an introductionor overview of the project, a description of how the project is organized, the management andtechnical processes used on the project, and sections describing the work to be done, the schedule,and the budget.

Common project plan elements

The introduction or overview of the project should at least include the following information:· The project name. Every project must be assigned a unique name to help

identify it and avoid confusion with other related projects.· A brief description of the project and the need it addresses. This

description clearly outlines the rationale and goals of the project. It shouldbe written in simple terms, avoiding technical jargon, and it must include arough time and cost estimate.

· The sponsor’s name. Every project needs a sponsor. You must include thesponsor’s name, title, and contact information in the project introduction.

· The names of the project manager and key team members. The projectmanager is always the contact for providing all project-related information.However, depending on the size and nature of the project, you can includethe names of key team members.

· Project deliverables. This section briefly describes the products to becreated as part of the project. Software packages, hardware components,technical reports, and training material are examples of deliverables.

· A list of important reference materials. Many projects have a history thatis pertinent to the project. Listing important documents or results ofmeetings held in the past help project stakeholders understand the project’shistory. This section also refers to the plans for other knowledge areas. Forexample, the overall project plan refers to and summarizes important parts ofscope, schedule, cost, quality, staffing, communications, risk, andprocurement management plans.

· A list of definitions and acronyms, if applicable. Many projects, especially informationtechnology (IT) projects, involve terminology unique to a particular industry or technology.Providing a list of definitions and acronyms helps ensure consistency in their use across theproject.

Project organization

The description of how a project is organized includes the following information:· Organizational charts. In addition to an organizational chart for the company sponsoring the

project and for the company’s customer (if it is an external customer), you include a projectorganizational chart to show the lines of authority, responsibilities, and communication for theproject.

· Project responsibilities. This section of the project plan describes the major project functionsand activities and identifies the individuals responsible. A responsibility assignment chartoften displays this information.

· Other organizational or process-related information. Depending on the nature of theproject, you can document the major processes followed during the life cycle of that project.For example, if a project involves launching a major software upgrade, you can create adiagram or timeline of the major steps involved in this process.



Management and technical processes

The section of the project plan describing management and technical processes includes the followinginformation:

· Management objectives. It is important for team members to understand senior managers’views, priorities, assumptions, or constraints regarding the project.

· Project controls. This section describes how to monitor the progress and changes in theproject. This information answers the questions: Will monthly status reviews and quarterlyprogress reviews be held? Will specific forms or charts be used to monitor progress? Will theproject use earned value analysis to assess and track performance? What is the process forchange control? What level of management is required to approve different types of changes?(Change control is discussed later in this unit.)

· Risk management. This section briefly addresses how to identify, manage, and control risks.It refers to the risk management plan if the project requires one.

· Project staffing. This section describes the number and types of personnel required for theproject. It also refers to the staffing management plan, if the project requires one.

· Technical processes. This section describes the specific methodologies a project might useand how information is to be documented. For example, many IT projects follow specificsoftware development methodologies or use particular Computer Aided Software Engineering(CASE) tools. Many companies or customers also use specific formats for technicaldocumentation. It is important to describe these technical processes in the project plan.

Work to be done

The section of the overall project plan describing the work to be done refers to the scopemanagement plan and summarizes the following:

· Major work packages. Project work is organized into several work packages by using awork breakdown structure (WBS). To describe the work in detail, you might need to create astatement of work (SOW). This section briefly summarizes the main work packages for theproject and refers to the appropriate sections of the scope management plan.

· Key deliverables. This section lists and describes the key products developed as part of theproject. It also describes the stakeholders’ expectations regarding the quality of thedeliverables.

· Other work-related information. This section highlights key information related to the workto be performed as part of the project. For example, it might list specific hardware or softwareto be used or define the specifications to which the team must conform. It documents majorassumptions made in defining the project work.

Schedule

The project schedule information section includes the following:· Summary schedule. It is a one-page summary of the overall project schedule. Depending on

the project’s size and complexity, the summary schedule might list only key deliverables andtheir planned completion dates. For other projects, it might include a Gantt chart with detailsof all the work and associated dates for the entire project.

· Detailed schedule. This section provides detailed information about the project schedule. Itrefers to the schedule management plan and discusses dependencies among project activitiesthat can affect the schedule. For example, a detailed schedule might explain that a major partof the work can start only after funding by an external agency. You can use a project networkdiagram or a PERT chart to show these dependencies.

· Other schedule-related information. Many assumptions are made while preparing projectschedules. This section documents major assumptions and highlights other importantinformation related to the project schedule.

Budget

The budget section of the overall project plan includes the following:



· Summary budget. The summary budget includes the total estimate of the overall project’sbudget. It can also include the budget estimate for each month or year categorized intospecific budget categories. It is important to provide an explanation of what this data means.For example, is the total budget estimate a firm number that cannot change, or is it a roughestimate based on projected costs over the next three years?

· Detailed budget. This section summarizes the cost management plan and includes detailedbudget information. For example, it defines the fixed and recurring cost estimates for theproject each year. It also includes information about the projected financial benefits of theproject, the skills and competencies of the human resources required for the project, and thebasis for calculating the labor costs.

· Other budget related information. This section documents major assumptions andhighlights other important information related to financial aspects of the project.

Do it! A-2: Developing a planExercises

1 What is a project plan, and why is it essential?

2 What are some crucial elements of a good project plan?

3 Keeping in mind your current project, create a project plan including all theessential elements.

4 What are the inputs and outputs of project plan development?

5 What are the tools and techniques that aid in project plan development?

6 Describe the contents of a plan for a project to develop a Web-basedinformation system that provides transfer credit information for all collegesand universities in the world.

7 What are the various components of a project schedule?

Project plan guidelinesExplanation Many organizations use guidelines for creating project plans. For example, Department of Defense

(DOD) Standard 2167, Software Development Plan, describes the format for contractors to use in



creating a plan for DOD software development projects. IEEE Standard 1058.1 describes the contentsof a Software Project Management Plan (SPMP). The following table provides the format for theIEEE Standard SPMP. Note that this format includes five main sections—introduction, projectorganization, managerial process, technical process, and work packages, schedule, and budget.Companies working on software development projects for the DOD must follow this standard. Mostprivate organizations do not follow rigorous documentation standards; however, they usually followguidelines for developing project plans. It is a good practice in an organization to follow standards orguidelines for developing project plans because it facilitates the development and execution of theplans. The organization can work more efficiently if all project plans follow a similar format.

Project managementplan sections

Section topics

Introduction Project overview, project deliverables, evolution of theSPMP, reference material, and definitions and acronyms.

Project organization Process model, organizational structure, organizationalboundaries and interfaces, and project responsibilities.

Managerial process Management objectives and priorities; assumptions,dependencies, and constraints; risk management;monitoring and controlling staffing plan.

Technical process Methods, tools, and techniques; software documentation;and project support functions.

Work packages, schedule, andbudget

Work packages, dependencies, resource requirements,budget and resource allocation, and schedule.

Because the goal of project management is to meet or exceed the stakeholders’ needs andexpectations for the project, it is important to include stakeholder analysis as part of project planning.A stakeholder analysis documents information, such as key stakeholders’ names and organizations,their roles on the project, unique facts about each stakeholder, their level of interest in the project,their influence on the project, and suggestions for managing relationships with each stakeholder. Astakeholder analysis often includes sensitive information; therefore, it should not be part of theoverall project plan available to all stakeholders. In many cases, only project managers and other keyteam members should be allowed access to the stakeholder analysis.

Do it! A-3: Discussing project plan guidelinesQuestions and answers

1 What are the five sections of IEEE Standard SPMP?

2 Why is it important to include a stakeholder analysis as part of projectplanning?

Topic B: Plan execution and change control



Explanation Project plan execution involves performing the work described in the project plan. Themajority of project time and resources are spent during execution. Therefore,developing and following a well-designed plan facilitates managing these valuable andfinite elements.

Project integration management involves project planning and execution as intertwined andinseparable activities. The main objective of creating project plans is to guide project execution. Agood plan helps develop good products and documents what comprises good products. Knowledgegained from work during the initial phases of a project must be included in updates to the projectplans.

A common sense approach to improving the coordination between project plan development andexecution is to follow this simple rule: First you plan the work, then you work the plan. All projectpersonnel need to experience and develop both planning and executing skills. In IT projects,programmers writing detailed specifications and then creating the code based on their ownspecifications are observed to be better at writing specifications. Similarly, most systems analystsbegin their careers as programmers so they understand the types of analysis and documentationneeded to write quality code.

Although project managers develop the overall project plan, they must invite inputs from teammembers developing plans in each knowledge area.

Project managers must lead by example to demonstrate the importance of creating good plans andthen follow them in project execution. Project managers who follow their own plans carefully usuallyhave team members who abide by the project plan.

Executing a project plan well requires many skills; some essential ones include leadership,communication, and political skills. For example, organizational procedures can help or hinderproject plan execution. If an organization provides guidelines for creating overall project plans andplans for each project management knowledge area, and everyone in the organization follows these, itis easier to create the plans. Similarly, if the organization uses the project plans as the basis forperforming and monitoring progress during execution, the culture promotes the relationship betweengood planning and execution. Project managers must lead their specific projects to interpret theseplanning and execution guidelines. Project managers must also communicate well with the projectteam and other project stakeholders to create and execute project plans.

Project managers might sometimes find it necessary to break organizational rules to produce projectresults in a timely manner. When project managers break the rules, they must have sound reasons todo so and must communicate the same to all involved in the project. For example, if a particularproject requires use of nonstandard software, the project manager must provide appropriate reasons toconvince concerned stakeholders of the need to break the rules on using only standard software.Breaking organizational rules requires excellent leadership and communication skills.

Product skills and knowledge are also critical to successful project execution. Project managers andtheir team members must have the required expertise to work on a project. If they do not, it is theproject manager’s job to help the team acquire the necessary skills, arrange alternate resources for theproject, or alert senior managers to the problem. Organizations must choose carefully their ITprojects and ensure they have adequate resources for the same. It is also important for IT projectmanagers to have product knowledge so they can help plan and lead projects that take advantage ofnew technologies.

Tools and techniques of project plan executionProject plan execution also requires specialized tools and techniques, some of which are unique toproject management. Tools and techniques that help project managers perform activities related toexecution processes include:

· Work authorization systems. A method for ensuring that qualified people dowork at the right time and in the proper sequence. This system can be a manualprocess in which written forms and signatures are used to authorize work tobegin on specific project activities or work packages. Automated workauthorization systems are also available to streamline this process.

· Status review meetings. Regular meetings must be held to exchange project



information. These meetings serve as an excellent means to motivate teammembers to contribute to the project. These meetings also help projectstakeholders know about the exact status of the project.

· Project management software. Software specifically designed for projectmanagement can help create and execute the project plan. For example, projectmanagers or team members can create Gantt charts for project plans by usingsoftware, such as Microsoft Project 2003. These Gantt charts can includehyperlinks to other planning documents. For example, a project plan mightinclude a deliverable for creating software test plans. This item on the Ganttchart can include a hyperlink to a Microsoft Word file for that software testplan. If a project team member updates the Word file containing the test plan,the hyperlink feature on the Gantt chart automatically links to the updated file.When a baseline plan is set for the project, project team members can enterinformation about the start and end of each project activity, the time spent oncompleting each activity, and other information. The project manager can thenuse project management software to compare the baseline and actualinformation by viewing reports on project progress—running a report to showthe planned versus the actual tasks completed and project costs.

Although these tools and techniques can aid in project execution, project managers must rememberthat positive leadership is the key to successful project management. Project managers can focus onproviding leadership for the project by delegating the detailed work involved in using these tools toother team members.

Do it! B-1: Discussing plan executionExercises

1 Which are the essential skills needed for plan execution?

2 Which one of the following is a tool used for plan execution?

A Status review meetings

B Project plan execution

C Project integration

Integrated change controlExplanation Integrated change control involves identifying, evaluating, and managing changes throughout the

project life cycle. The three main objectives of integrated change control are:· Influencing the factors that lead to beneficial changes. To ensure that

changes are beneficial and that a project is successful, project managers andtheir teams must make tradeoffs among key project dimensions, such as scope,time, cost, and quality.

· Determining that a change has occurred. To determine that a change hasoccurred, project managers must know the status of key project areas at alltimes during the life cycle of the project. In addition, project managers mustcommunicate significant changes to senior managers and key stakeholders, whoneed to be informed of important information such as low project productivity,long execution time, high cost, or poor quality.

· Managing changes as and when they occur. Managing change is a key job ofproject managers and their team members. It is important that project managersexercise discipline in managing their projects to help minimize the number ofchanges.

Important inputs to the integrated change control process include project plans, performance reports,and change requests. Important outputs include project plan updates, corrective actions, and



documentation of lessons learned during the project. Exhibit 2-3 provides a schematic representationof the integrated change control process.

Exhibit 2-3: Integrated change control process

The project plan provides the baseline for identifying and controlling project changes. For example,the project plan includes a section describing the work to be performed as part of a project. Thissection of the plan describes the key deliverables, products, and quality requirements for the project.The schedule section lists the planned dates for completing key deliverables, and the budget sectionprovides the planned cost for the deliverables. The project team must focus on delivering the work asplanned. If changes are made during project execution, the project plans must be revised.

Performance reports provide status information on project execution. The main purpose of thesereports is to alert the project manager and team of potential problems related to the project. Theymust decide if corrective actions are needed, the best course of action, and the best time to take thisaction. For example, suppose one of the key deliverables in a project plan is installation of a newWeb server for the project. If one of the project team members reports problems coordinating thepurchase and installation of this Web server, the project manager should assess the impact of theproblems on the output of the project. If a late installation will cause problems in other areas of theproject, the project manager should take necessary actions to help the team member resolve theproblem. If the situation is inevitable, the project manager should alert the other team members whowill also be impacted by the changes in the schedule. The project manager should also look at theoverall progress of the project. If the project manager identifies a recurring trend of missingdeadlines, he or she should alert key stakeholders and negotiate a later completion date for theproject.

Change requests are common and occur in different forms. They can be oral or written, formal orinformal. For example, the team member responsible for installing a Web server seeks the projectmanager’s approval for the purchase of a server with a faster processor than planned, but at the samecost. Because this change is positive and has no negative effects on the project, the project managermight verbally approve the same. Nevertheless, it is important to document this change to avoid anyproblems in the future. The team member should update the section of the scope management planwith the new specifications for the server.

Remember that many change requests can have a major impact on a project. For example, customerschanging their minds about the number of Web servers they want as part of a project will definitelyimpact the project’s scope and cost. Such a change might also affect the project’s schedule. Moresignificant changes must be written, and a formal review process must be arranged to analyze anddecide on implementing these changes.

In addition to updating project plans and taking corrective actions, documentinglessons learned is an important output of the overall change control process. Theproject manager and team should share the knowledge they acquired while workingon the project. There should be some documentation of these lessons learned inchange control and discussing them at an open meeting is also an effective way toshare this information.

Change control on IT projects

A widely held view of IT project management from the 1950s to the 1980s was that the project teamshould strive to achieve the results within the planned time and budget. However, it was observedthat project teams could rarely meet project goals set originally at the start of the projects, especiallywhen the projects involved new technologies. Stakeholders rarely agreed on the scope of the projector the end product. In addition, time and cost estimates created early in a project were rarely accurate.

Today, most project managers and senior managers realize that project management is a process ofconstant communication and negotiation about project objectives and stakeholder expectations. Thisview assumes that changes can be made throughout the project life cycle and recognizes that changesare often beneficial to projects. For example, if a project team member discovers a new hardware orsoftware technology that can help meet the customers’ requirement for less time and money, theproject team and key stakeholders can make changes to the project.



All projects undergo changes, and managing them is a key issue in project management, especiallyfor IT projects. Many IT projects involve the use of hardware and software that is updated frequently.For example, in a project, the initial plan for the Web server specifications might have to be revisedbecause of the availability of a much-improved version at the same cost. This example illustrates apositive change. In contrast, if the manufacturer of the server specified in the project plan goes out ofbusiness, it results in a negative change. IT project managers must build some flexibility into theirproject plans and execution to accommodate such changes. Customers for IT projects must allow formeeting project objectives in different ways.

Even if project managers, teams, and customers are flexible, it is important that projects use a formalchange control system. To plan for managing changes, a project must use a good change controlsystem.

Change control system

A change control system is a formal, documented process that describes when and how to changeproject documents. It also describes the personnel authorized to make changes, the necessarydocumentation, and the automated or manual tracking systems the project will use. A change controlsystem often includes a change control board (CCB), configuration management, and a process forcommunicating changes.

A CCB is a formal group that approves or rejects project changes. A CCB primarily providesguidelines for preparing change requests, evaluating change requests, and managing theimplementation of approved changes. An organization can assign key stakeholders for the entireorganization on this board, and a few members could rotate based on the unique needs of eachproject. Creating a formal board and a process for managing change results in better-integratedchange control.

Configuration management is another important technique for integrated change control.Configuration management ensures that the descriptions of the project’s products are correct andcomplete. Configuration management focuses on the management of technology by identifying andcontrolling the functional and physical design characteristics of products and their supportdocumentation. Members of the project team, often called configuration management specialists, aredesignated to perform configuration management for large projects. These specialists’ key job is toidentify and document the functional and physical characteristics of the project’s products, controlany changes to such characteristics, record and report the changes, and audit the products to verifythat they conform to requirements.

Another factor in change control is communication. Project managers should use written and oralperformance reports to help identify and manage project changes. In addition to formal reports, someproject managers hold stand-up meetings every morning or once a week, depending on the nature ofthe project. The goal of a stand-up meeting is to quickly communicate what is most important on theproject. Standing keeps meetings short and forces all attendees to focus on the most importantmatters related to the project.

Why is good communication critical to success? An important aspect of project change is to ensureall team members are aware of the latest project information. The project manager integrates allproject changes to ensure the project executes as planned. The project manager and the team mustdevelop a system for notifying everyone affected by a change in a timely manner. E-mail and theWorld Wide Web make it easier to disseminate the latest information. Using special projectmanagement software also helps project managers track and communicate project changes.

As described earlier, project management is a process of constant communication and negotiation.Project managers must plan for changes and use appropriate tools and techniques, such as a changecontrol board, configuration management, and effective communication. It is helpful to defineprocedures for making timely decisions on minor changes, use performance reports to help identifyand manage changes, and use software to assist in planning, updating, and controlling projects. Thefollowing list describes suggestions for managing integrated change control.

· View project management as a process of constant communication andnegotiation.

· Plan for change.· Establish a formal change control system, including a CCB.



· Use good configuration management.· Define procedures for making timely decisions on minor changes.· Use performance reports to help identify and manage change.· Use project management and other software to help manage and communicate

changes.

Project managers must also be strong leaders to steer their projects to successful completion. Projectmanagers must delegate part of their work to team members and focus on providing overallleadership for the project. Remember, to lead the teams and the organization to success, projectmanagers must focus on the big picture and perform project integration management well.

Do it! B-2: Discussing change controlQuestions and answers

1 What are the three main objectives of integrated change control?

2 What is the main purpose of performance reports?

3 What are the guidelines provided by a CCB?

4 What is the main focus of configuration management?

5 How do the features of project plan execution function in relation to changecontrol?

Unit summary: Integration managementTopic A In this topic, you learned that the key processes of integration management include project plan

development, execution, and overall change control. You also learned that a thorough projectplan, with its many elements and sections, is the foundation of any successful project. Finally, youlearned that project plan execution and overall change controls require highly specialized tools andtechniques in order to carry out, monitor, and modify the project plan, if required.

Topic B In this topic, you learned about the importance of integrated change control. You also learned aboutthe change control system when controlling changes. Finally, you learned the tools and techniquesfor plan execution.

Independent practice activity 1 Which of the following is a component of project integration management?

A Developing a plan



B Implementing the budget

C Controlling project risks

D Coordinating work packages

2 Project integration management involves integrating the other knowledge areas within a project aswell as integrating areas outside a project. True or False?

True

3 List information that might be included in a stakeholder analysis document. Is this informationavailable to all stakeholders as part of the overall project plan?

Answers might vary, but can include: stakeholders’ names and organizations, their roles on the project, unique factsabout each stakeholder, their level of interest in the project, their influence on the project, and suggestions formanaging relationships with each stakeholder.

Due to the sensitive nature of this information, it is not available to all stakeholders. In many cases, only projectmanagers and other key team members should be allowed access to the stakeholder analysis document.

4 List possible ways of managing integrated change control.

Answers might vary, but can include: view project management as a process of constant communication andnegotiation, plan for change, establish a formal change control system—including a CCB, use good configurationmanagement, define procedures for making timely decisions on minor changes, use performance reports to helpidentify and manage change, and use project management and other software to help manage and communicatechanges.

U n i t 3Scope management



A Identify the key elements of project scope managementand tools for strategic planning and project selectionduring project initiation.

B Identify the key elements of scope planning and a scopestatement.

C Discuss scope verification and change control as theyrelate to project scope management.

Topic A: Project initiationExplanation One of the most important and difficult aspects of project management is defining the scope of a

project. Scope refers to the work involved in creating the project’s products and the processes used tocreate them. Project stakeholders must come to an agreement on what products are to be developed



and the associated procedures.

Project scope management includes the processes involved in defining and controlling what is or isnot included in a project. It ensures that the project team and stakeholders share the sameunderstanding of the products or services to be developed as part of the project and the processesused to produce them. The main processes involved in project scope management include:

· Initiation. This involves committing the organization to begin a project orcontinue to its next phase. Initiation processes define a project charter, which isa key document for formally defining a project and providing its broadoverview.

· Scope planning. This involves creating documents, defining the basis for futureproject decisions, including the criteria for determining if a project or a phase iscompleted successfully. During the scope planning process the project teamcreates a scope statement and a scope management plan.

· Scope definition. This involves subdividing the major project deliverables intosmaller, more manageable components. The project team creates a WorkBreakdown Structure (WBS) during this process.

· Scope verification. This involves formalizing the acceptance of the projectscope. Key project stakeholders, such as its customer and sponsor, formallyaccept the project deliverables during this process.

· Scope change control. This involves handling changes to project scope. Scopechanges, corrective action, and lessons learned are part of the output of thisprocess.

Strategic planningManagers and sales professionals take into consideration the big picture or strategic plan of theorganization to identify types of projects will provide the maximum value to the organization.Therefore, the project initiation process involves identifying potential projects, using realistic methodsto select the projects to work on, and then formalizing their initiation by issuing the project charter.

Identifying potential projects

The first step in scope management is to decide the type of projects that theorganization must take on. Exhibit 3-1 shows a four-stage planning process forselecting information technology (IT) projects. Note the hierarchical structure ofthis model and the results of each stage. Starting at the top of the hierarchy, thefirst step in IT planning is to develop an IT strategic plan based on theorganization’s overall strategic plan. Strategic planning involves determining long-term objectives by analyzing an organization’s strengths and weaknesses, studyingopportunities and threats in the business environment, predicting future trends, andprojecting the need for new products and services. The “SWOT” analysis—analyzing Strengths, Weaknesses, Opportunities, and Threats—is used to aidstrategic planning.

For organizations in the IT sector, it might be important to get managers from outside the IT field toassist in the IT strategic planning process because they can help IT personnel understandorganizational strategies and identify the business areas that support them.

Exhibit 3-1: IT planning process

After you have identified business areas to focus on, the next step in the IT planning process is toperform a business area analysis. This analysis documents the business processes that are central toachieving strategic goals and aid in discovering the processes that best apply to IT. The next step isto start defining potential IT projects, their scope, benefits, and constraints. The last step in the ITplanning process is to select the projects and assign resources to them.

Information systems can be and often are central to business strategy. Michael Porter, who developed



the concept of the strategic value of competitive advantage, has written several books and articles onstrategic planning and competition. He and many other experts emphasized the importance of usingIT to support strategic plans and provide competitive advantage. Many information systems areclassified as being “strategic information systems” because they directly support key businessstrategies.

For example, information systems can help an organization to be a low-cost producer. Wal-Mart’sinventory control system is a classic example of such a system. Information systems can support astrategy of providing specialized products or services that set a company apart from others in theindustry. Consider, for example, Federal Express’s introduction of online package tracking systems.Information systems can also support a strategy of selling in a particular market or occupying aspecific project niche. Owens-Corning developed a strategic information system that boosted thesales of its home-insulation products by providing its customers with a system for evaluating theenergy efficiency of building designs.

Even though many IT projects might not produce strategic information systems or receive greatpublicity, it is critical that the IT project planning process start by analyzing the organization’soverall strategy. Organizations must develop a strategy for using IT to define how it will support theorganization’s objectives. This strategy must be aligned with the organization’s plans. Mostorganizations face a large number of problems and opportunities for improvement. Therefore, anorganization’s strategic plan must guide the project selection process. Research shows that supportingexplicit business objectives is the primary reason that firms cite for investing in IT projects. Othermain reasons include supporting implicit business objectives and providing financial incentives, suchas a good internal rate of return (IRR) or net present value (NPV). These financial criteria arediscussed later in this unit.

The following table summarizes the main reasons why firms invest in IT projects and shows thatmost IT projects score well on a weighted scoring model.

Reason for investing in IT projects RankSupports explicit business objectives 1

Provides good internal rate of return (IRR) 2

Supports implicit business objectives 3

Provides good net present value (NPV) 4

Grants reasonable payback period 5

Used in response to competitive systems 6

Supports management decision making 7

Meets budgetary constraints 8

Provides high probability of achieving benefits 9

Provide good accounting rate of return 10

High probability of completing projects 11

Meets technical/system requirements 12

Supports legal/government requirements 13

Helps obtain good profitability index 14

Introduces new technology 15



Do it! A-1: Discussing strategic planningExercises

1 Imagine a situation in which you work as a project manager of theMcCormick project, and the project is unsuccessful. Resources are unavailable,the project exceeds its time frame, and the goals are not met. In your opinion,which component was incorrect in this situation?

A Integration

B Time management

C Project scope

D Contracts and procurement

What can you do to avoid such situations in the future?

2 Explain strategic planning and SWOT analysis.

3 Why do most firms invest in IT projects?

Methods for selecting projectsExplanation Organizations identify many potential projects as part of their strategic planning processes, but the

list of most beneficial potential projects needs to be created. Selecting projects is not an exactscience, but it is a critical part of project management. You can choose from several methods forselecting possible projects. Four common methods are:

· Focusing on broad organizational needs· Categorizing IT projects· Performing analyses of the NPV or other financial aspects· Using a weighted scoring model

In practice, organizations use a combination of these approaches to select projects. Each approachoffers several advantages and disadvantages, and management can decide the best approach forselecting projects.

Focusing on broad organizational needs

Senior managers must focus on meeting their organization’s needs when deciding the projects toundertake and their time span. Projects meeting the overall organizational needs are likely to besuccessful. However, it is often difficult to correlate many IT projects with organizational needs. Forexample, it is often impossible to estimate the financial value of such projects, although managersmight be able to indicate such projects do have a high value.

A method for selecting projects based on broad organizational needs is to determine whether theprojects meet three important criteria: need, funding, and will. For example, many visionary CEOscan highlight the need for their organization to improve communication. Although it might not beclear how this improvement will be brought about, funds might be allocated to projects that address



this need. Another example is that of a project for developing strong IT infrastructure, providing allemployees, customers, and suppliers with the hardware and software they need to access information.As projects progress, the organization must reevaluate the need, funding, and will for each project todecide if it should be continued, redefined, or terminated.

Categorizing IT projects

Another method of selecting projects is based on various categorizations. One type of categorizationassesses whether projects provide a response to a problem, an opportunity, or a directive:

· Problems are undesirable situations that prevent an organization from achieving its goals.Problems might be current or anticipated. For example, users of an information system mightface problems logging on to the system or accessing information because the system hasreached its capacity. To solve this problem, the company can initiate a project to enhance thecurrent system by adding more access lines or upgrading the processor, memory, and storagespace that are part of the hardware.

· Opportunities are circumstances that help an organization to improve. For example, acompany might believe that it can enhance sales by selling products directly to customers overthe Internet. The company can initiate a project to enable direct product sales from its Website.

· Directives are new requirements imposed by management, government, or an external body.For example, an organization might want all its vendors to use a form of electronic datainterchange (EDI) for all business transactions. The organization initiates a project toimplement this form of EDI.

Organizations select projects for many reasons. Projects that address problems or directives areapproved and funded readily because organizations must carry out these categories of projects toprevent any negative impact on their business. Most problems and directives must be resolvedquickly, but managers must also take a holistic view and seek opportunities for improving theorganization by carrying out IT projects.

Another categorization for IT projects is according to the time required to complete them or the enddate of the project. For example, some projects must strictly be completed within a specific time line,after which they lose their viability. Some projects can be completed quickly—within a few weeks,days, or even minutes. Many organizations have a help desk function that handles small projects witha short life span. While many IT projects can be completed quickly, it is important to prioritize them.

A third categorization for project selection is according to its overall priority. Many organizationsassign the high, medium, or low priority to IT projects. The high-priority projects must always becompleted first, even if a low or medium priority project can be finished in less time. Usually, morepotential IT projects are available than an organization can undertake at any point in time, so it isimportant to work on the most crucial ones first.

Net present value analysis, return on investment, and payback analysis

Financial considerations are an important concern in the project selection process. The three primarymethods for determining the projected financial value of projects are net present value (NPV)analysis, return on investment (ROI), and payback analysis.

NPV analysis is a method of calculating the expected net monetary gain or loss from a project bydiscounting all expected future cash inflow (income) and outflow (payments, negative values). Onlyprojects with a positive NPV should be considered if financial value is a key criterion for projectselection. This is because a positive NPV means the return from a project exceeds the cost of capital—the return available by investing the capital elsewhere. Projects with high NPVs are preferred toprojects with low NPVs, if all other parameters are constant. Exhibit 3-2 illustrates this concept fortwo different projects.

Exhibit 3-2: Examples of NPV

Note that the sum of the cash flow, $5,000, is the same for both projects. The NPV differs because itaccounts for the time value of money. Money earned today is worth more if the same amount is



earned in the future. Project 1 had a negative cash flow of $5,000 in the first year, but Project 2 had anegative cash flow of only $1,000 in the first year. Although both projects had the same total cashflow without discounting, the financial value of the cash flow cannot be compared. NPV analysis,therefore, is a method that involves comparing cash flows for projects running into several years.

To determine NPV:1 Determine the cash inflow and outflow for the project. Exhibit 3-2 shows an example. Notice

that the sources of cash inflow are listed as projected benefits and the sources of cash outfloware listed as projected costs for the project. The cash flow each year is calculated bysubtracting the cost from the benefits for each year.

2 Determine the discount rate. A discount rate is the minimum acceptable rate of return on aninvestment. It is also called the required rate of return, hurdle rate, or opportunity cost ofcapital. Most companies use a discount rate based on the return that the organization expectsto receive for an investment from other sources of comparable risk. In Exhibit 3-2, thediscount rate used is 10 percent per year.

3 Calculate NPV. There are several ways to do so. Most types of spreadsheet software use abuilt-in function to calculate NPV. For example, Exhibit 3-2 shows the formula that MicrosoftExcel uses: =npv(discount rate, range of cash flows), where the discount rate is in cell B3 andthe range of cash flows for Project 1 are in cells B8 through F8. The formula’s result yieldsan NPV of $2,316 for Project 1 and $3,201 for Project 2. Because both projects have positiveNPVs, they are both good candidates for selection. However, since Project 2 has a higherNPV than Project 1, an organization would prefer Project 2 over Project 1.

The mathematical formula for calculating NPV is:NPV = ?t=1…n A/(1+r)

t

where t equals the year of the cash flows, A is the amount of cash flow each year, and r is thediscount rate. A simpler way to use this formula is to first determine the annual discount rate and thenapply it to the cost and benefits for each year. Calculate NPV by determining the total discountedbenefits and adding the discounted cost, assuming the cost is entered as a negative number. Exhibit3-3 and Exhibit 3-4 illustrate this method of calculating NPV. Recall that the discount rate in thisexample is 10 percent or 0.10. You can calculate a discount factor—a multiplier for each year basedon the discount rate and year—for each year as follows:

Year 1: discount factor = 1/(1+0.10)1 = .91Year 2: discount factor = 1/(1+0.10)2 = .83Year 3: discount factor = 1/(1+0.10)3 = .75Year 4: discount factor = 1/(1+0.10)4 = .68Year 5: discount factor = 1/(1+.010)5 = .62

You can then calculate the discounted cost each year by multiplying the discount factor by the costfor each year. You calculate the discounted benefits in the same way. To calculate NPV, add thediscounted benefits and the discounted cost, entering cost as a negative number. Notice that the NPVfor Project 1 is 2,316 and that for Project 2 is 3,201 in Exhibit 3-3, and Exhibit 3-4, respectively.

Return on investment

Another important financial consideration is return on investment (ROI). ROI is calculated bydividing the income by investment. For example, if you invest $100 today and the next year, it isworth $110, your ROI is $110/100 or 0.10 or 10 %. It is best to consider discounted income andinvestment for multi-year projects when calculating ROI. You calculate the ROI for Project 1 asfollows:

ROI = (total discounted benefits - total discounted costs)/total discountedcosts

ROI = (9,747 – 7,427) / 7,427 = 31%

A high ROI value is best for an organization. Because the ROI for Project 2 is 42 percent, anorganization will prefer this project over Project 1.

Many organizations have a required rate of return for projects. The required rate of return is theminimum acceptable rate of return on an investment, and it is based on the return that theorganization expects to receive by investing in other sources of comparable risk.

Payback analysis



Payback analysis is another important financial tool that organizations use when selecting projects.Payback period is the amount of time it will take to recoup, in the form of net cash inflows, the netdollars invested in a project. In other words, payback analysis determines how much time will lapsebefore accrued benefits exceed accrued and continuing costs. Payback occurs when the cumulativediscounted benefits and costs are greater than zero. Exhibit 3-3 and Exhibit 3-4 show how tocalculate the payback period, NPV, and ROI. For Project 1, payback occurs in year 5 (see Exhibit3-3), and for Project 2, it occurs in year 3 (see Exhibit 3-4). Project 2, therefore, has a better paybackperiod because the period is shorter.

Many organizations follow specific recommendations for the length of an investment’s paybackperiod. They might require all IT projects to be planned for a payback period of less than three oreven two years, regardless of the estimated NPV or ROI.

To aid in project selection, it is important for project managers to understand their organizations’financial expectations from projects. It is also important for senior managers to understand thelimitations of financial estimates, particularly for IT projects. For example, it is difficult to developgood estimates of projected costs and benefits for IT projects.

Exhibit 3-3: NPV, ROI, and payback analysis for Project 1

Exhibit 3-4: NPV, ROI, and payback analysis for Project 2

Weighted scoring model

A weighted scoring model is a tool that provides a systematic process for selecting projects based onseveral criteria. These criteria can include factors, such as the organizational needs; the problems,opportunities, or directives for the organization; the amount of time it will take to complete theproject; and the project’s overall priority and the projected financial performance.

The first step in creating a weighted scoring model is to identify the criteria important for the projectselection process. This is a critical activity that is performed by holding facilitated brainstormingsessions or using groupware to exchange ideas. Some possible criteria for IT projects include:

· Support for key business objectives· A strong internal sponsor· Strong customer support· A realistic level of technology· Ability to be implemented in one year or less· A positive NPV· Low risk in meeting scope, time, and cost goals

After you define the criteria, you need to assign a weight to each criterion. These weights indicatehow important each criterion is. You can assign weights based on percentages. The total of theseweights must be 100 percent. You then assign numerical scores to each criterion (for example, 0 to100) for each project. The scores indicate to what extent each project meets each criterion. At thispoint, you can use a spreadsheet application to create a matrix of projects, criteria, weights, andscores.

Do it! A-2: Selecting projectsQuestions and answers

1 What are the common methods for selecting a project from among possibleprojects?



2 What are the criteria on which various projects are selected?

3 In your experience, which project selection tools have been the most helpfulin assessing a project’s potential? Why?

4 What is NPV analysis?

5 What are the three methods of calculating a project’s financial value?

Project chartersExplanation After senior managers decide the projects to undertake, it is important to inform all

concerned teams in the organization about these projects. Managers need to create anddistribute documentation to start the work. This documentation can be in manydifferent forms, but the most common form is a project charter. A project charter is adocument that formally recognizes a project and provides direction on the project’sobjectives and management. Instead of charters, some organizations initiate projectsusing a simple letter of agreement, while others use formal contracts. Key projectstakeholders should sign the project charter to acknowledge agreement on the need andintent of the project. A project charter is a key output of the initiation process.

Exhibit 3-5 provides a sample project charter. Notice that the key parts of this project charter are:· The project’s title and date of authorization· The project manager’s name and contact information· A brief scope statement for the project· A summary of the planned approach for managing the project· A roles and responsibilities matrix· A sign-off section for signatures of key project stakeholders· A comments section in which stakeholders can provide important comments related to the

project

Exhibit 3-5: Sample project charter

The sample charter shown in Exhibit 3-5 fits on one page. A project charter can be as simple as aone-page form or a memo from a senior manager, briefly describing the project and listing theresponsibilities and authority of the new project manager and stakeholders. Charters can also be long,however, depending on the nature of the project. For example, a contract might serve as a projectcharter.

Project charters need to be authored by the concerned authority with the proper knowledge and



experience to write and sign project charters. Senior managers might verbally approve a project, butit is important to create a formal charter to clarify roles and expectations. It might be assumed thatsenior managers must write the charter, but that need not be the case.

A simple project charter helps define clear requirements and expectations to all involved in theproject. If project stakeholders are unavailable, project managers can refer to the project charter to geta better understanding of the project.

After formally recognizing the existence of a project, the next step in project scope management isdetailed scope planning.

Do it! A-3: Discussing project chartersExercises

1 What is a project charter?

2 Discuss the sample project charter shown in Exhibit 3-5. Use the samplecharter to prepare a project charter for your current project.

3 You are working in the Internet division of your organization. You decide toupgrade from category 3 cables to category 5 cables, which is a large-scaleproject change. How should you modify the project charter?

A Issue a new project charter

B Update the current project charter

C Update the product outline

D Update the product description

4 A project charter includes several elements. From the items listed below,identify the element that doesn’t belong to a project charter.

A Scope of the project

B Organizational structure

C Description of the product

D Benefit measurement methods

Topic B: Scope planning and scope statementExplanation Project scope planning involves creating documents that detail the basis for future

project decisions, including the criteria for determining if a project or a phase iscompleted successfully. The project charter, descriptions of the products involved inthe project, project constraints, and project assumptions are input for the scopeplanning process. The main output of this process is the written scope statement,including supporting detail, and a scope management plan.

The scope statementA scope statement is a document used by a project team to arrive at a common understanding of theproject scope. The scope statement includes a project justification, a brief description of the project’sproducts, a summary of all project deliverables, and a statement of what determines project success.

· The project justification describes the business needs that lead to project creation.· The brief description of a project’s products summarizes the characteristics of the products or



service that the project will produce.· The summary of project deliverables lists the deliverables. Deliverables in an IT upgrade

project might include documentation, such as a project plan, a WBS, a detailed cost estimate,a communications management plan, and performance reports. Other deliverables include anupdated inventory of all hardware and software, upgraded hardware and software, and statuspresentations.

· The final section of the scope management plan describes the quantifiable criteria thatdetermine project success, such as cost, schedule, and quality measures.

Scope statements also vary by type of project. Large, complex projects have long scope statements.Government projects often include a scope statement known as a Statement of Work (SOW). Somecomprehensive SOWs might include detailed product specifications. As with many other projectmanagement documents, the scope statement should be tailored to meet the needs of the particularproject.

Do it! B-1: Discussing scope planning and scope statementExercises

1 What does scope involve?

2 How do scope statements vary with the types of projects?

3 Which of the following is an output of scope planning?

A Descriptions of the products involved in the project

B Project charter

C Project constraints

D Scope statement

4 The Winslow project was originally slated to create a teleconferencing systemfor the Winslow company’s corporate office. Halfway through the project, theclient wanted to add a videoconferencing system and update the company’svoice mail service as well. What was the problem with this project’s scope?

A The scope was not analyzed.

B Nothing was wrong with the project scope.

C The scope was too narrow.

D The scope was too broad.

5 When planning the scope of a project, you want to gain an in-depthunderstanding of the product to be produced. Which action will you take toachieve this?

A Completing a product analysis.

B Conducting a cost/benefit analysis.

C Asking for expert recommendations.

D Identifying alternatives.



Scope definition and the work breakdown structureExplanation After completing scope planning, the next step in project scope management is to

further define the work to be done as part of the project and break it into manageablesections. Breaking work into manageable sections is called scope definition. Goodscope definition helps clearly define the time, cost, and resource estimates, defines abaseline for performance measurement and project control, and aids in communicatingclear work responsibilities. The output of the scope definition process is the workbreakdown structure for a project.

The work breakdown structure

A work breakdown structure (WBS) is an outcome-oriented analysis of the work involved in a projectthat defines the project’s scope. A WBS is a foundation document in project management because itprovides the basis for planning and managing project schedules, costs, and changes. Projectmanagement experts believe that work must be done on a project only if it is included in the WBS.

A WBS is often depicted as a task-oriented family tree of activities. It is usually organized aroundproject products or phases. A WBS can appear as an organizational chart, which can help peoplevisualize the project and its main components and phases. Exhibit 3-6 shows a WBS for an intranetproject. Notice that this structure is organized by product area. In this case, there are main boxes fordeveloping the Web site design, the home page for the intranet, the marketing department’s pages,and the sales department’s pages.

Exhibit 3-6: Sample intranet WBS organized by product

In contrast, a WBS for the same intranet project can be organized according to project phases, asshown in Exhibit 3-7. Notice that project phases of concept, Web site design, Web site development,roll out, and support provide the basis for this organization.

Exhibit 3-7: Sample intranet WBS organized by phase

The work breakdown structures in Exhibit 3-6 and Exhibit 3-7 present information in a hierarchicalform. The top level of a WBS is the 0 level and represents the entire project. (Note the labels on theleft side of Exhibit 3-7.) The next level is level 1, which represents the major products or phases ofthe project. Level 2 includes the main subsets of level 1. For example, in Exhibit 3-7, the level 2items under the level 1 item “Concept” include: evaluate current system, define requirements, definespecific functionality, define risks and risk management approach, develop project plan, and briefWeb development team. Under the level 2 item called “Define Requirements” are four level 3 items:define user requirements, define content requirements, define server requirements, and define serverowner requirements.

In Exhibit 3-7, the lowest level is level 3. The lowest level of the WBS represents work packages. Awork package is a deliverable or a product at the lowest level of the WBS. As a rule, each workpackage in a WBS represents roughly 80 hours of effort. You can also define work packages in termsof accountability and reporting. If a project has a short time frame and requires weekly progressreports, a work package might represent 40 hours of work. On the other hand, if a project runs for along time and requires quarterly progress reports, a work package might represent more than a 100hours of work.

The sample WBS shown here seems easy to construct and understand. However, it might be difficultto create a good WBS. To do so, you must understand both the project and its scope and incorporatethe needs and knowledge of stakeholders. It is important to involve the entire project team and thecustomer in creating and reviewing the WBS. The team that will work on the project must beinvolved in creating its WBS. Arranging group meetings to develop a WBS helps all in the teamunderstand the nature of the work and the procedures to be followed to complete the work. It alsohelps identify the links of coordination required between different work packages.

Do it! B-2: Discussing project scope and WBSExercises



1 Why is good scope definition important?

2 How is project scope definition related to WBS?

3 A ______________ is the foundation for project planning. It helps identify therequired deliverables for a project and provides a standard way to organizework.

A Project charter

B Work breakdown structure

C Scope verification and control document

D Project management scope plan

4 What is the benefit of using an outline WBS?

A It’s a practical way to list a large number of deliverables.

B It provides a visual representation of all deliverables in a treelike structure.

C It simplifies understanding the various parts of the project and their inter-relationships.

D It includes a basic summary of each deliverable for the project.

Approaches to develop work breakdown structuresExplanation There are several approaches you can use to develop work breakdown structures (WBSs). These

approaches include:· Using guidelines· Using the analogy approach· Using the top-down approach· Using the bottom-up approach

Using guidelines

If you are provided guidelines for developing a WBS, it is important to follow them. Someorganizations—for example, the U.S. Department of Defense (DOD)—prescribe the form and contentfor WBSs for particular projects. Many DOD projects require contractors to prepare proposals basedon the DOD-provided WBS. These proposals must include cost estimates for each task in the WBSat a detailed and summary level. The cost for the entire project must be calculated by adding the costof all of the lower-level WBS tasks. When DOD personnel evaluate cost proposals, they mustcompare the contractors’ costs with the DOD’s estimates. A large variation in costs for a certainWBS task often indicates lack of clarity about the nature of work.

Consider a large automation project for the U.S. Air Force. In the mid-1980s, the Air Force requestedproposals for the Local On-Line Network System (LONS) to automate 15 Air Force systemscommand bases. This $250-million project involved providing the hardware and developing softwarefor sharing documents, such as contracts, specifications, and requests for proposals. The Air Forceproposal guidelines included a WBS that contractors were required to follow while preparing the costproposals. Level 1 WBS items included hardware, software development, training, and projectmanagement. The hardware item was composed of several level 2 items, such as servers,workstations, printers, and network hardware. Air Force personnel reviewed the contractors’ costproposals against their internal cost estimate, which was also based on this WBS. Having aprescribed WBS helped contractors prepare their cost proposals and the Air Force to evaluate them.



The analogy approach

Another approach for constructing a WBS is the analogy approach. In the analogy approach, you usea similar project’s WBS as a starting point.

McDonnell Aircraft Company provides an example of using an analogy approach when creating aWBS. McDonnell designs and manufactures several different types of fighter aircrafts. When creatinga WBS for a new aircraft design, the company starts by using 74 predefined subsystems for buildinga fighter aircraft based on past experience. There is a level 1 WBS item for the airframe composed oflevel 2 items, such as a forward fuselage, center fuselage, aft fuselage, and wings. This genericproduct-oriented WBS provides a starting point for defining the scope of new aircraft projects anddeveloping cost estimates for new aircraft designs.

Some organizations maintain a repository of WBSs and other project documentation on file to assistthe project teams. Viewing examples of other similar projects’ WBSs allows you to understanddifferent ways to create a WBS.

The top-down and bottom-up approaches

Two other approaches for creating WBSs are the top-down and bottom-up approaches. Most projectmanagers consider the top-down approach of WBS construction as conventional. To use the top-down approach, start with the largest items of the project and break them into their subordinateitems. This process involves progressively dividing the work into minute levels of detail. Forexample, Exhibit 3-7 shows how work was broken down to level 3 for part of the intranet project.After finishing the process, all resources are assigned at the work package level. The top-downapproach is best suited to project managers who have vast experience and technical insight intoseveral types of projects.

In the bottom-up approach, team members first identify the maximum possible specific tasks relatedto the project. The team members then aggregate the specific tasks and organize them into summaryactivities or higher levels in the WBS. For example, a group of team members might be responsiblefor creating a WBS to create an intranet. These team members can directly focus on the tasks theyneed to perform to create an intranet. Next, they group the tasks into categories. Then, they groupthese categories into high-level categories. Project managers often use the bottom-up approach forprojects that represent entirely new systems or approaches to performing a task or to help create buy-in and synergy with a project team.

Advice for creating a WBS

Creating a good WBS can require several iterations. Often, it is best to use a combination ofapproaches to create a project WBS. There are some basic principles that apply to creating any goodWBS:

· A unit of work must appear at only one instance in the WBS.· The work content of a WBS item is the sum of the WBS items below it.· A WBS item is the responsibility of only one individual, even though many team members

might work on it.· The WBS must be consistent with the way in which work will be performed; it should serve

the project team first and serve other purposes only if required.· Project team members should be involved in developing the WBS to ensure consistency and

buy-in.· Each WBS item must be documented to ensure accurate understanding of the scope of work

included and excluded.· The WBS must be a flexible tool used to accommodate inevitable changes while maintaining

control of the work in the project.

At the request of many of its members, the Project Management Institute recently developed a WBSPractice Standard to provide guidance for developing and applying the WBS to project management.

Do it! B-3: Developing a WBS



Exercises 1 What are the four approaches for constructing a WBS?

Which of these approaches will be best for a project manager developing an ITproject for your organization?

2 In your organization, have you or your project manager conducted meetingswith the project team to review the WBS?

If you attended/conducted a meeting for reviewing your project’s WBS, howdid the meeting impact the WBS?

3 The first step you should take to design and use a WBS includes:

A Reviewing the relevant historical information

B Listing the breakdown of deliverables

C Comparing project progress to the WBS

D Asking for expert recommendations about the WBS

4 Consider a project where you are helping a company construct a new officebuilding. What is the first step you take to create a good WBS?

A Identify data relevant to the WBS

B Examine use of resources

C Compare actual progress to scheduled progress

D List the breakdown of the deliverables

Topic C: Scope verification and scope change controlExplanation It can be difficult to create a good scope statement and a WBS for a project. It is even more difficult,

especially on IT projects, to verify the project scope and minimize scope changes. Many technicalprojects suffer from scope creep—the tendency for project scope to get bigger than initiallyanticipated. For this reason, it is important to verify the project scope and develop a process forcontrolling scope changes.

Scope verification involves formal acceptance of the project scope by the stakeholders.To receive formal acceptance, the project team must create clear documentation of theproject’s products and procedures and evaluate if they were completed correctly andsatisfactorily. In contrast, scope change control involves controlling changes to theproject scope. To minimize scope change control, it is crucial that the project scope beverified accurately.

The table below lists, in the order of importance, the factors reported to cause the maximumproblems when executing IT projects. Notice that the top three factors are directly related to scopeverification and change control.

Factor RankLack of user input 1



Incomplete requirements and specifications 2

Changing requirements and specifications 3

Lack of executive support 4

Technology incompetence 5

Lack of resources 6

Unrealistic expectations 7

Unclear objectives 8

Unrealistic time frames 9

New technology 10

Suggestions for improving user inputLack of user input, one of the important factors contributing to project failure, can lead to problemswith managing scope creep and controlling change. How can you manage this important issue? Thefollowing are suggestions for improving user input:

· Develop a good project selection process for IT projects. Insist that all projects have asponsor from the user organization. Make IT project information, including the projectcharter, scope statement, and WBS, easily available to the organization. This helps avoidduplication of effort and ensures that teams work on the most important projects on priority.

· Make users part of the project team. Some organizations assign co-project managers to ITprojects, one from IT and one from the main user group. Generally, users will be assignedfull-time to large IT projects and part-time to small projects.

· Conduct regular meetings. Meeting regularly ensures frequent interaction and exchange ofinformation among users. Meetings also ensure dissemination of user feedback and encourageinteraction so that users sign off on key deliverables presented at meetings.

· Deliver portions of deliverables to project users and sponsors on a regular basis. If the team isdeveloping hardware or software, they must ensure it is functional.

· Collocate users with the developers. Collocating encourages high interaction and exchange ofinformation. If users cannot be physically moved to a location near developers for thecomplete duration of a project, they can set aside specific days for collocation.

Suggestions for reducing incomplete and changing requirements

IT projects might have flexibility to accommodate minor changes in requirements, but too manychanges to requirements, especially during the later stages of a project life cycle might make itdifficult to implement them. The following are suggestions for improving the requirements process:

· Develop and follow a requirements management process that includes procedures fordetermining the initial requirements.

· Employ techniques, such as prototyping, use case modeling, and Joint Application Design, toclearly understand user requirements. Prototyping involves developing a working replica ofthe system or an aspect of the system. These working replicas might be throwaways or anincremental component of the deliverable system. Prototyping is an effective tool for gainingan understanding of requirements, determining the feasibility of requirements, and resolvinguncertainties related to the user interface. Use case modeling is a process for identifying andmodeling business events, the parties that initiated them, and the procedures that the systemshould follow to respond to them. Use case modeling is an effective tool for understandingrequirements for object-oriented systems. Joint Application Design (JAD) uses organized andintensive workshops to bring together project stakeholders—the sponsor, users, businessanalysts, and programmers—to jointly define and design information systems. These



techniques also help users play a key role in defining system requirements.

· Articulate all requirements, document them, and make them readily available. Several toolsare used to automate this function. For example, a type of software, called a requirementsmanagement tool, helps record and maintain requirements, provides immediate access to theinformation, and assists in establishing necessary relationships between requirements andinformation created by other tools.

· Create a requirements management database for documenting and controlling requirements.Computer Aided Software Engineering (CASE) tools or other technologies can help maintaina repository for project data.

· Ensure adequate testing to verify that the project’s products perform as expected. Conducttesting throughout the project life cycle.

· Use a process for reviewing requested changes in requirements from a systems perspective.For example, ensure that scope changes include associated cost and schedule changes. Ensureapproval by appropriate stakeholders.

· Emphasize completion dates. For example, a project manager at Farmland Industries, Inc. inKansas City, Missouri, kept a 15-month, $7 million integrated supply-chain project on trackby setting the project deadline. In the project manager’s words, “May 1 was the drop-deaddate, and everything else was backed into it. Users would come to us and say they wantedsomething, and we’d ask them what they wanted to give up to get it. Sticking to the date ishow we managed scope creep.”

Project scope management is important, especially on IT projects. Organizations must first selectimportant projects, plan how to perform the work of the project, break down the work intomanageable segments, verify the scope with project stakeholders, and manage changes to projectscope. Using the basic project management concepts and techniques discussed in this unit can helpyou successfully perform project scope management.

Do it! C-1: Discussing scope verification and change controlExercises

1 From the following statements, select the option that correctly states whathappens during scope verification.

A This process is used to make the WBS clear and easy to understand.

B This process is used to gain the acceptance of the current project statusand the final sign-off on the project’s scope.

C This process is used to provide a framework that you can use to identifyprojects for organizations, accounting systems, and funding sources.

D This process is used to break down the summary deliverables into small,clearly defined deliverables.

2 List some factors that can lead to scope creep in IT projects.

3 Discuss the theory and practice behind using project charters, scopestatements, and WBSs.

4 Rate the suggestions to increase user input on a scale from 1 to 5. Whichsuggestions seem most beneficial?



5 Which types of projects will most benefit from your first choice in the list?From your last choice?

Unit summary: Scope managementTopic A In this topic, you learned that strategic planning and project selection involve assessing an

organization’s needs, and that project selection can be facilitated by using various tools andstrategies. Three primary methods of determining the projected financial value of projects includeexamining NPV, ROI, and Payback analysis. You also learned how to create a project charter.

Topic B In this topic, you learned about scope planning and the scope statement. You also learned to createand use a WBS.

Topic C In this topic, you learned about scope verification and scope change control. You also learned howto improve user input.

Independent practice activity 1 Create a WBS for one of the following projects (break down the work to at least the third level

for one of the items on the WBS. Make notes of your questions while completing this exercise.

A Building your dream house

B Planning a traditional wedding

C Creating a new information system for your school or company

Answers might vary.

2 A project constraint is a factor that must be managed to finish a project successfully. True orfalse?

True

3 List the actions to be taken during scope planning?

Scope planning involves creating documents and defining the basis for future project decisions, including the criteriafor determining if a project or phase is completed successfully. During the scope planning process the project teamcreates a scope statement and a scope management plan.

4 When writing a scope statement, list the information you want to include.

The scope statement includes a project justification, a brief description of the project’s products, a summary of allproject deliverables, and a statement of what determines project success.

5 List some basic principles for creating a good WBS.

Answers might vary, but can include: a unit of work must appear at only one instance in the WBS; the work contentof a WBS item is the sum of the WBS items below it; a WBS item is the responsibility of only one individual, eventhough many team members might work on it; the WBS must be consistent with the way in which work will beperformed; project team members should be involved in developing the WBS to ensure consistency and buy-in; eachWBS item must be documented to ensure accurate understanding of the scope of work included and excluded; andthe WBS must be a flexible tool used to accommodate inevitable changes while maintaining control of the work in theproject.

6 After reviewing a project’s scope statement, the project stakeholders are happy with what theyread and decide to move on to the next phase. What is the next phase?

A Begin the project management process

B Create a statement of work

C Rewrite the scope statement

D Develop a detailed project plan



U n i t 4Time management



A Define schedules and activities, identify activitysequencing, and discuss activity duration estimation.

B Discuss schedule development with the help of Ganttcharts, PERT, critical path analysis, and critical chainscheduling.

C Identify how to control changes to a project schedule anduse software to manage time.

Topic A: Schedules and activitiesExplanation Managers often cite delivering projects on time as one of their biggest challenges. Many information

technology (IT) projects are run to meet tough deadlines and struggle to meet scope, time, and costprojections.

Components of time managementManagers also cite concerns related to schedules as the main reason for conflicts during the projectlife cycle. Exhibit 4-1 shows the results of research on the causes of conflicts in projects. This exhibitshows that problems with schedules are the main reasons for conflicts during the project life cycle.Note that project phases in this study were called project formation, early phases, middle phases, andend phases. You can interpret these names as concept, development, implementation, and close-out.

During the project formation or concept phase, priorities and procedures cause more conflict thanschedules. During the early phases, also called the development phase, priorities cause more conflictthan schedules. During the middle and end phases or implementation and close-out phases, problemswith schedules are the predominant cause of conflicts.

You can debate scope and cost overruns so that actual progress appears similar to planned estimates.However, after a project schedule is defined, schedule performance can be calculated by subtractingthe original time estimate from the actual time spent. Project managers compare planned and actualproject completion time, without taking into account changes in the project. Time is also a variablethat is minimally flexible.

Exhibit 4-1: Conflict intensity over the life of a project1

Project time management involves all tasks and processes performed to ensure timely completion of aproject. However, achieving this result can be challenging. The main processes involved in projecttime management include:



· Activity definition, which involves identifying the specific activities that theproject team members and stakeholders must perform to develop projectdeliverables. An activity or a task is an element of work, listed on the WBS,which can be completed in an expected duration, at a specific cost, and bymeeting specific resource requirements.

· Activity sequencing, which involves identifying and documenting therelationships between project activities.

· Activity duration estimating, which involves estimating the number of workperiods required to complete each activity.

· Schedule development, which involves analyzing activity sequences, activityduration estimates, and resource requirements to create the project schedule.

You can effectively manage your time by performing these processes and by using basic projectmanagement tools and techniques. Generally project managers are familiar with some form ofscheduling, but many managers are not experienced in using most of the tools and techniques uniqueto project time management, such as Gantt charts, network diagrams, and critical path analysis.

Do it! A-1: Discussing the components of time managementQuestions and answers

1 Which of the following is a leading cause of conflicts during the project lifecycle?

A Cost

B Priorities

C Schedules

D Manpower

2 What are the main processes involved in time management?

3 How can you effectively manage time?

Schedule and activity definitionExplanation Project schedules are derived from the basic documents created at the start of a project.

The project charter often mentions planned project start and end dates, which serve asthe starting points for a detailed schedule. The project manager uses the charter todevelop a detailed scope statement and WBS. The project charter should also includean estimate of the budget allocated to the project. Then, the project manager and theteam use the scope statement, WBS, and budget information to develop a detailedproject schedule and arrive at the estimated completion date. If the estimatedcompletion date varies significantly from the plans created by the senior managementor the customer, the project manager must negotiate changes in scope or cost to meetschedule expectations.

Recall the triple constraint of project management—balancing scope, time, and cost goals—and notetheir order. Ideally, a project team and key stakeholders define the project scope, then the time or



schedule for the project, and finally, the project’s cost. The order of these three items reflects thebasic order of the first three processes in time management: activity definition (detailing the scope),activity sequencing (detailing the time), and activity duration estimations (detailing the cost). Thesethree project time management processes are the basis for creating a project schedule.

Activity definition results in a project team developing a detailed WBS and supporting explanations.The goal of this process is to ensure that members of the project team completely understand thework that is part of the project scope. The WBS is often examined further during this process as theproject team members define, in detail, the activities required for performing and completing thework. As stated earlier, activities or tasks are elements of work performed during the course of aproject and they are defined in terms of expected duration, costs, and resource requirements. Activitydefinition also provides supporting documents, important product information, and assumptions andconstraints related to specific activities. The project team should review the revised WBS andsupporting documents with project stakeholders before moving on to the next step in project timemanagement.

Do it! A-2: Defining a schedule and an activityQuestions and answers

1 If a project team decides to deliver a shipment of PCs, list the activities thatthe team will perform to prepare for the delivery.

2 What is the goal of activity definition?

Activity sequencingExplanation After defining project activities, the next step in project time management is activity sequencing.

Activity sequencing involves reviewing the activities in the detailed WBS, detailed productdescriptions, assumptions, and constraints to determine the relationships between activities. It alsoinvolves evaluating the reasons for dependencies and the different types of dependencies.A dependency or a relationship shows the sequencing of project activities or tasks. Determining theserelationships or dependencies between activities has a significant impact on developing and managinga project schedule.

There are three basic reasons for creating dependencies among project activities:· Mandatory dependencies are inherent in the nature of the work being done on a

project. They are sometimes referred to as hard logic. For example, you cannottest code until after the code is written.

· Discretionary dependencies are defined by the project team. For example, aproject team might follow a good practice and not start detailed design of a newinformation system until the users sign off the analysis work. Discretionarydependencies are sometimes referred to as soft logic. They should be used withcare because they might limit later scheduling options.

· External dependencies involve relationships between project and non-projectactivities. The installation of a new operating system and other software mightdepend on the delivery of new hardware from an external vendor.

As with defining activities, it is important that project stakeholders work together to discuss anddefine the activity dependencies on their project. Some organizations define guidelines based on theactivity dependencies of similar projects. Other organizations rely on the skills of the experts workingon the project and their interactions with other employees. Some stakeholders like to write eachactivity letter or name on a Post-It note or some other moveable paper to determine dependencies orsequencing. Still others use project management software to establish relationships. Just as it is easierto write a research paper by first putting down the thoughts on paper before typing into a word



processor, it is usually easier to manually perform activity sequencing before entering the informationinto project management software.

Many organizations might not define activity dependencies and do not use them in project timemanagement. You must define the sequence of activities to be able to use some of the most powerfulschedule tools: network diagrams and critical path analysis.

Project network diagrams

Project network diagrams are preferred for showing activity sequencing. A project network diagramis a schematic display of the logical relationships among, or sequencing of, project activities. Asample network diagram for Project X, which uses the arrow diagramming method (ADM) oractivity-on-arrow (AOA) approach, is shown in Exhibit 4-2.

Exhibit 4-2: Sample activity-on-arrow (AOA) network diagram for Project X

The format of this project network diagram uses the activity-on-arrow (AOA) or arrow diagrammingmethod (ADM)—a network diagramming technique in which activities are represented by arrows andconnected at points called nodes to illustrate the sequence of activities. A node is simply the start andend point of an activity. The first node signifies the start of a project, and the last node represents theend.

Note the main elements in this network diagram. The letters A, B, C, D, E, F, G, H, I, and J representactivities required to complete the project. These activities are derived from the WBS and activitydefinition process described earlier. The arrows represent the activity sequencing or relationshipsbetween tasks. For example, Activity A must be performed before Activity D; Activity D must becompleted before Activity H, and so on.

Keep in mind that a network diagram represents activities that must be performed to complete aproject. Every activity on the project network diagram must be completed for the project to finish.

It is also important to note that not every item on a WBS needs to be included in a project networkdiagram, especially on large projects. Sometimes, it might be enough to include summary tasks on aproject network diagram or split the project into several small network diagrams. Some tasks that theteam is familiar with must be completed regardless of other activities, and these tasks might not beincluded in the network diagram.

Assuming you have a list of project activities and their start and finish nodes, follow these steps tocreate an AOA network diagram:

1 Identify all the activities that start at node 1. Draw their finish nodes, and draw arrows fromnode 1 to each of the finish nodes. Insert the activity letter or the name of the associatedarrow. If you are working with a duration estimate, specify the estimate next to the activityletter or name, as shown in Exhibit 4-2. For example, A = 1 means that the duration ofActivity A is one day, one week, or other standard unit of time. Ensure you insert arrowheadson all arrows to signify the direction of the relationships.

2 Continue drawing the network diagram, working from left to right. Look for bursts andmerges. Bursts occur when a node is followed by two or more activities. A merge occurswhen two or more nodes precede a node. For example, in Exhibit 4-2, node 1 is a burstbecause it is followed by the nodes 2, 3, and 4. Node 5 is a merge preceded by nodes 2 and 3.

3 Continue drawing the project network diagram until all activities are included.4 All arrowheads should face toward the right, and no arrows should cross the AOA network

diagram. You might need to redraw the diagram to make it look presentable.

Even though AOA or ADM network diagrams are easy to understand and create, a different methodis more commonly used: the precedence diagramming method.

The precedence diagramming method (PDM) is a network diagramming technique in which boxesrepresent activities. It is useful for visualizing specific types of time relationships. Exhibit 4-3illustrates the types of dependencies that can occur among project activities. After you determine thereason for a dependency between activities (mandatory, discretionary, or external), you mustdetermine the type of dependency. Note that the terms activity and task are used interchangeably, asare relationship and dependency. The four types of dependencies or relationships between activities



are:· Finish-to-start. A relationship where one activity must finish before its

successor activity can start. For example, you cannot provide user traininguntil the software or a new system is installed. Finish-to-start is the mostcommon type of relationship or dependency.

· Start-to-start. A relationship where one activity must start when or beforeits successor activity can start. For example, if a company wants to set up adata center with 100 workstations, the successor activity of configuringapplications on each of the desktops will start only if the activity of physicalinstallation of the computers has begun.

· Finish-to-finish. A relationship where two activities can beginindependently of each other, but the predecessor activity must finish beforeits successor activity can finish. For example, quality control efforts cannotfinish before production is complete, although the two activities can beperformed at the same time.

· Start-to-finish. A relationship where one activity must start before itssuccessor activity can finish. This type of relationship is rarely used.

Exhibit 4-3: Task dependency types

Exhibit 4-4 illustrates Project X using the PDM method. Notice that the activities (A, B, C, D, etc.)are listed inside boxes, which represent the nodes in this diagram. Arrows and arrowheads are againused to show the relationships between activities. This exhibit was created using Microsoft Project2003, and the application automatically places additional information inside each node. Each task boxincludes the start and finish date, labeled Start and Finish; the task ID number, labeled ID; the task’sduration, labeled Dur; and the names of any resources assigned to the task, which is labeled Res.Some nodes appear in red with a thicker border and no shading. These nodes represent the criticalpath, which will be discussed later in this unit.

Exhibit 4-4: Sample precedence diagramming method (PDM) network diagram for Project X

PDM is used more often than AOA diagrams and offers a number of advantages over the AOAtechnique. First, most project management software uses the PDM method. Second, the PDM methodavoids the need for using dummy activities—activities without the duration and resourcesoccasionally required on AOA diagrams to show logical relationships between activities. Third, thePDM method shows different dependencies among tasks, but the AOA method uses only finish-to-start dependencies.

Do it! A-3: Sequencing activitiesExercises

1 What is activity sequencing?

2 Why is activity sequencing a critical step in project time management?

3 List the four types of dependencies or relationships between activities.



4 What is the benefit of the precedence diagramming method?

Activity durationExplanation After defining activities and determining their sequence, the next process in project time management

is to estimate the duration of activities. Duration includes the amount of time worked on an activityplus the elapsed time. For example, even though it might take one week or five working days toperform an activity, the duration estimate might be two weeks to allow a developer working only halftime on the activity and a developer who must wait a week to obtain the required information. As indefining activities and their sequences, it is important for the project stakeholders to discuss activityduration estimates. The developers who perform the work, in particular, should participate in definingthe duration estimates because they will be able to provide realistic estimates regarding theproductivity and performance. It also helps to review similar projects and seek the advice of expertsin estimating activity durations.

Several types of input are required for activity duration estimations. The detailed activity list andsequencing provides a basis for estimates. It is also important to review constraints and assumptionsrelated to the estimates. Historical information related to the activities can also be helpful. One of themost important considerations in making duration estimates is the availability of resources, especiallyhuman resources, and the skills of the human resources.

The output of activity duration estimations includes duration estimates for each activity,the basis of the estimates, and updates to the WBS. Updates to the WBS are madewhen project team members decide that specific activities should be examined furtherbased on their duration estimates.

Do it! A-4: Estimating activity durationExercises

1 What is activity duration?

2 What are the inputs to activity duration estimating?

3 Write about a project that you completed successfully. Recall some of theconstraints and assumptions and how they impacted your duration estimates.

4 List the outputs of an activity duration estimate.



Topic B: Schedule developmentExplanation Schedule development uses the results of all the preceding project time management processes to

arrive at a project’s start and end dates. You might go through several iterations of the timemanagement processes before finalizing the project schedule. The goal of schedule development is tocreate a realistic project time estimate that provides a basis for monitoring project progress.

· A Gantt chart is a common tool used for displaying project scheduleinformation.

· PERT analysis is a means of evaluating schedule risk on projects.· Critical path analysis is an important tool for developing and managing project

schedules.· Critical chain scheduling is a technique that accounts for resource constraints.

The following sections provide samples of each of these tools and techniques and a discussion oftheir advantages and disadvantages.

Gantt chartsGantt charts provide a standard format for displaying project schedule information by listing projectactivities and their corresponding start and finish dates in a calendar format. Henry Gantt developedthe first Gantt chart during World War I to schedule work in job shops. Early versions simply listedproject activities or tasks in one column to the left and calendar time units, such as months, to theright. The charts used horizontal bars under the calendar units to illustrate when activities should startand end. Nowadays, most project managers use project management software to create sophisticatedversions of Gantt charts that allow easy updates of information.

Exhibit 4-5 shows a simple Gantt chart for Project X. Exhibit 4-6 shows a more sophisticated Ganttchart based on a software launch project. The activities on the Gantt chart coincide with the activitieson the WBS.

Exhibit 4-5: Gantt chart for project X

Notice that the software launch project’s Gantt chart contains several different symbols in addition totask bars (Exhibit 4-6).

· The black diamond symbol represents a milestone—a significant event on aproject with no duration. In Exhibit 4-6, Task 1, “Marketing Plandistributed,” is a milestone achieved on March 17. Tasks 3, 4, 8, 9, 14, 21,23, 30, and 32 are also milestones. For very large projects, senior managersmight want to see only the milestones on a Gantt chart. Project 2003 allowsyou to filter information displayed on a Gantt chart so you can easily showspecific tasks, such as milestones.

· The thick black bars with arrows at the beginning and end representsummary tasks. For example, Activities 12 through 15—“Develop CreativeBriefs,” “Develop Concepts,” “Creative Concepts,” and “AdDevelopment”—are all subtasks of the summary task called Advertising,Task 11. WBS activities are referred to as tasks and subtasks in most projectmanagement software.

· The light gray horizontal bars, such as those in Exhibit 4-6 for tasks 5, 6, 7,10, 12, 13, 15, 18, 20, 22 and 31, represent the durations of their respectivetasks. For example, the light gray bar for Subtask 5, “Packaging,” starts inmid-February and extends until early May.

· Arrows connecting these symbols show relationships or dependenciesbetween tasks. Gantt charts often do not show dependencies, which is theirmajor disadvantage. However, if dependencies have been established inProject 2003, they are automatically displayed on the Gantt chart.



Exhibit 4-6: Gantt chart for software launch project

Milestones are a particularly important part of schedules, and some project managers use the SMARTcriteria to help define them. The SMART criteria are guidelines suggesting that milestones should bespecific, measurable, assignable, realistic, and time-framed. For example, distributing a marketingplan is specific, measurable, and assignable if all team members are familiar with the followingcomponents: the marketing plan and the process to distribute it, the number of copies to bedistributed and the recipients, and the representative responsible for the final delivery. Distributingthe marketing plan is realistic and time-framed if it is an achievable event and scheduled at theappropriate time.

You can use Gantt charts to evaluate progress on a project by showing the schedule information.Exhibit 4-7 shows a tracking Gantt chart—a Gantt chart that compares planned and actual projectschedule information. The planned schedule dates for activities are called the baseline dates. Thetracking Gantt chart includes columns (hidden in Exhibit 4-7) labeled “Start” and “Finish” torepresent actual start and finish dates for each task as well as columns labeled “Baseline Start” and“Baseline Finish” to represent planned start and finish dates for each task. In this example, the projectis completed, but several tasks missed their planned start and finish dates.

Exhibit 4-7: Sample tracking Gantt chart

To serve as a progress evaluation tool, a tracking Gantt chart uses a few additional symbols:· Notice that the Gantt chart in Exhibit 4-7 often shows two horizontal bars for tasks. The

bottom horizontal bar represents the planned or baseline duration for each task. The bar aboveit represents the actual duration. If the two bars are the same length and start and end on thesame date, then the schedule was the same as the planned schedule for the task. Thisscheduling occurred for subtask 1.1, where the task started and ended as planned on 3/4. If thebars do not start and end on the same date, then the actual schedule differed from the plannedschedule. If the top horizontal bar is longer than the bottom one, the task took longer thanplanned, as you can see for subtask 1.2. If the top horizontal bar is shorter than the bottomone, the task took less time than planned. A striped horizontal bar, illustrated by Main Task 1,represents the planned duration for summary tasks. The black bar adjoining the striped barshows progress for summary tasks.

· A white diamond on the tracking Gantt chart represents a slipped milestone. A slippedmilestone means the milestone activity was completed later than originally planned. Forexample, the last task illustrates a slipped milestone because the final report and presentationwere completed later than planned.

· Percentages to the right of the horizontal bars display the percentage of work completed foreach task. For example, 100% means the task is completed, but 50% means the task is still inprogress and is only half completed.

· In the columns to the left of the Gantt chart, you can display baseline and actual start andfinish dates.

A tracking Gantt chart is based on the percentage of work completed for project tasks or the actualstart and finish dates. It allows the project manager to monitor schedule progress on separate tasksand on the entire project. For example, Exhibit 4-7 shows that this project is completed. It started ontime, but it finished a little later than planned.

The main advantage of using Gantt charts is that they provide a standard format for displayingplanned and actual project schedule information. In addition, they are easy to create and understand.The main disadvantage of Gantt charts is that they generally do not show relationships ordependencies between tasks. If Gantt charts are created using project management software and tasksare linked, then the dependencies will be displayed, but not as clearly as they are displayed onproject network diagrams.

Do it! B-1: Discussing Gantt chartsExercises



1 What is a Gantt chart? What does it depict?

2 Compare and discuss the Gantt charts shown in Exhibit 4-5 and Exhibit 4-6.

3 Are there any disadvantages to using a Gantt chart? If so, describe them.

Critical path methodExplanation Many projects fail to meet schedule expectations. Critical path method (CPM)—also

called critical path analysis—is a project network analysis technique used to predicttotal project duration. It is an important tool that will help you combat project scheduleoverruns. A critical path for a project is the series of activities that must be completedon schedule for a project to finish on time. It is the longest path through the networkdiagram and with the least slack or float. Slack or float is the time by which an activitymight be delayed without delaying a succeeding activity or the project finish date.

To determine the critical path for a project, you must first develop a good networkdiagram, which in turn, requires a good activity list based on the WBS. After youcreate a project network diagram, you must also estimate the duration of each activityto determine the critical path. Calculating the critical path involves adding the durationsfor all activities on each path through the project network diagram. The longest path isthe critical path.

The AOA project network diagram for Project X is shown in Exhibit 4-8. Note that you can useeither the AOA or PDM network diagramming method to determine the critical path on projects.Exhibit 4-8 shows all the paths—a total of four—through the project network diagram. Each pathstarts at the first node (1) and ends at the last node (8) on the AOA diagram. This exhibit also showsthe length or total duration of each path through the project network diagram. The duration iscomputed by adding the duration of each activity on the path. At 16 days, the path B-E-H-J has thelongest duration, making it the critical path for the project.

Exhibit 4-8: Determining the critical path for Project X

The critical path shows the shortest time in which a project can be completed. Even though thecritical path is the longest path, it represents the shortest time required to complete a project. If oneor more activities on the critical path take longer than planned, the project schedule will be missedunless the project manager takes corrective action.

Managers often do not clearly understand what the critical path for a project is or how it can beinterpreted. Some managers think the critical path includes only the most critical activities. However,the critical path is related only to the time dimension of a project and does not necessarily include allcritical activities. Another misconception is that the critical path is the shortest path through theproject network diagram. In some areas—for example, transportation modeling—similar diagrams aredrawn in which identifying the shortest path is the goal. For a project, however, each activity must becompleted to complete the project, and the goal is not to choose the shortest path.

Some other aspects of critical path analysis might cause confusion: can there be more than onecritical path on a project and does the critical path ever change? There can be several critical paths ona project. In the Project X example, suppose that Activity A has a duration estimate of 3 days insteadof 1 day. This new duration estimate increases the length of Path 1 equal to 16 days. Now, the projecthas two longest paths of equal duration, so there are two critical paths. Project managers must closely



monitor performance of activities on each critical path to avoid late project completion.

The critical path for a project can change as the project progresses. For example, suppose in aproject, Activities A, B, C, D, E, F, and G start and finish as planned. Then, suppose Activity I runsinto problems. If Activity I takes more than 4 days, it will cause path C-G-I-J to be longer than theother paths, assuming they progress as planned. This change will cause path C-G-I-J to become thenew critical path.

Using critical path analysis to make schedule tradeoffs

It is important to know the critical path throughout the life of a project so you can make tradeoffs. Ifthe project manager knows that one of the tasks on the critical path is running behind schedule, he orshe needs to decide corrective action. Should the schedule be renegotiated with stakeholders? Shouldadditional resources be allocated for other activities on the critical path to make up for the time?Alternatively, is it okay if the project is completed later than the planned end date? By monitoringthe critical path, the project manager and the team can proactively manage the project schedule.

A technique that can help project managers make schedule tradeoffs is determining the free slack andtotal slack for each project activity. Free slack or free float is the delay permissible for an activity,impacting the activities that follow subsequently. The early start date for an activity is the earliestpossible time an activity can start based on the project network logic. Total slack or total float is timeby which an activity can be delayed from its start without delaying the planned project finish date.

You calculate free slack and total slack by performing a forward and backward pass through anetwork. A forward pass determines the early start and early finish dates for each activity. The earlyfinish date for an activity is the earliest time when an activity can be completed based on the projectnetwork logic. The project start date is the same as the early start date for the first network activity.Early start plus the duration of the first activity brings you to the early finish date of the first activity.It is also equal to the early start date of each subsequent activity. When an activity is preceded bymultiple activities, its early start date is the latest of the early finish dates of those activities. Forexample, task H in Exhibit 4-8 is immediately preceded by tasks D and E. The early start date fortask H is the early finish date of task E because it occurs later than the early finish date of task D. Abackward pass through the network diagram determines the late start and finish dates for eachactivity. The late start date for an activity is the latest possible time an activity might begin withoutdelaying the project finish date. The late finish date for an activity is the latest possible time when anactivity can be completed without delaying the project finish date.

Though you can determine the early and late start dates of each activity manually, using projectmanagement software helps you complete the same task faster. The following table shows the freeand total slack for all activities on the project network diagram for Project X. Determining theamount of float or slack allows project managers to know whether the schedule is flexible and theextent of flexibility. For example, at seven days, task F in this example has the most free and totalslack. The most slack on any other activity is only two days. Understanding how to create and useslack information provides a basis for negotiating project schedules, if required.

Task Start Finish Late

startLatefinish

Freeslack

Totalslack

A 6/2 6/2 6/4 6/4 0d 2d

B 6/2 6/3 6/2 6/3 0d 0d

C 6/2 6/4 6/4 6/6 0d 2d

D 6/3 6/6 6/5 6/10 2d 2d

E 6/4 6/10 6/4 6/10 0d 0d

F 6/4 6/9 6/13 6/18 7d 7d

G 6/5 6/12 6/9 6/16 0d 2d

H 6/11 6/18 6/11 6/18 0d 0d



I 6/13 6/16 6/17 6/18 2d 2d

J 6/19 6/23 6/19 6/23 0d 0d

Importance of updating critical path data

In addition to determining the critical path at the beginning of a project, it is important to update theschedule with the factual data. After the project team completes activities, you should document thetime taken to complete the activities and calculate the revised estimates for activities in progress oryet to be started. These revisions often cause a project’s critical path to change, resulting in a newestimated completion date for the project. Proactive project managers and their teams can makeinformed decisions and keep stakeholders informed and involved in major project decisions.

Do it! B-2: Discussing the critical path methodExercises

1 What is critical path analysis? Why is it helpful?

2 How can you make a schedule tradeoff?

3 Why is it important to update critical path data?

Techniques for shortening a project scheduleExplanation The project manager and his or her team can use the critical path along with several duration

compression techniques to shorten the project duration. One technique is to reduce the duration ofactivities on the critical path. You can shorten the duration of critical path activities by allocatingmore resources to the activities or by changing their scope.

Crashing is a technique used for making cost and schedule tradeoffs to obtain themaximum schedule compression for the least incremental cost. By focusing on tasks onthe critical path that can be completed quickly for no extra cost or a small cost, you canshorten the project duration.

Another technique for shortening a project schedule is fast tracking. Fast trackinginvolves performing sequential activities simultaneously or in slightly overlapping timeframes.

The main advantage of fast tracking, as with crashing, is that it can shorten the time required to finisha project. The main disadvantage of fast tracking is that starting specific tasks too soon mightincrease project risk and result in additional work, thus lengthening the project’s duration.

Do it! B-3: Shortening a project scheduleQuestions and answers

1 What are the techniques used for shortening a project’s duration?

2 What is crashing?



Critical chain schedulingExplanation Another technique that addresses the challenge of meeting project finish dates is

applying a theory of constraints called critical chain scheduling. The theory ofconstraints (TOC) is a management philosophy developed by Eliyahu M. Goldratt andintroduced in his book The Goal. The theory of constraints is based on the fact thatlike a chain with a weak link, any complex system, at any point in time, often has onlyone aspect or constraint that limits it from achieving its goal. For the system to achievesignificant improvements, the constraint must be identified and the system must bemanaged accordingly. Critical chain scheduling is a method of scheduling that takesinto account limited resources when creating a project schedule and includes buffers toensure the project completion date is met.

You can find the critical path for a project without considering resource allocation. For example, youcan make task duration estimates and dependencies without considering the availability of resources.In contrast, an important concept in critical chain scheduling is the availability of resources. If aparticular resource is required full time to complete two tasks originally planned to occursimultaneously, critical chain scheduling acknowledges that you must either delay one of the tasksuntil the resource is available or find another resource. In this case, accounting for limited resourcesoften extends the project finish date, which is not desired by most project managers. Other importantconcepts related to critical chain scheduling include multitasking and time buffers.

Multitasking occurs when a resource works on more than one task at a time. This situation occursfrequently on projects. Team members are assigned to multiple tasks within the same project ordifferent tasks on multiple projects. For example, suppose a developer is working on three differenttasks, tasks 1, 2, and 3, for three different projects, and each task takes 10 days to complete. If thedeveloper did not work on the tasks simultaneously, and instead, completed each task sequentially,then task 1 will complete on day 10, task 2 will complete on day 20, and task 3 will complete on day30, as shown in Exhibit 4-9. However, developers often work on the three tasks simultaneously,completing each task in parts, as shown in Exhibit 4-10. In this example, the tasks were all half-doneone at a time, then completed one at a time. Task 1 is now completed at the end of day 20 instead ofday 10, task 2 is completed at the end of day 25 instead of day 30, and task 3 is completed on day30. This example illustrates how multitasking can delay task completion. Multitasking also ofteninvolves wasted setup time, which adds to the duration of the tasks.

Exhibit 4-9: Three tasks without multitasking

Exhibit 4-10: Three tasks with multitasking

Critical chain scheduling assumes that resources do not multitask. A developer cannot be assigned totwo tasks, simultaneously, on the same project, when critical chain scheduling is in effect. Similarly,critical chain theory suggests that projects be prioritized so that developers working simultaneouslyon several projects can identify the tasks that are a priority. Preventing multitasking avoids resourceconflicts and wasted setup time caused by shifting between the tasks.

An essential concept to improving project finish dates with critical chain scheduling is to change theway managers calculate task estimates. Many managers include in an estimate a safety or a buffer,which is additional time required to complete a task, to account for various factors. These factorsinclude the adverse impact of multitasking, distractions, interruptions, pressures, and Murphy’s Law,which states that if something can go wrong, it will. Critical chain scheduling removes buffers fromeach task and, instead, creates a project buffer, which is the time added before the project’s due date.Critical chain scheduling also protects tasks on the critical path from being delayed by using feedingbuffers, which is the additional time added before tasks on the critical path that are preceded by non-critical-path tasks.

Exhibit 4-11 provides an example of a project network diagram constructed using critical chainscheduling. Note that the critical chain accounts for a limited resource, X, and the schedule includes



the use of feeding buffers and a project buffer in the network diagram. The task estimates in criticalchain scheduling should be less than traditional estimates because traditional estimates do not includethe buffers. Task buffers should not be used so that the occurrence of Parkinson’s law, which statesthat work expands to fill the time allowed, is reduced. The feeding buffers and project buffers helpmeet the project completion date.

Exhibit 4-11: Example of critical chain scheduling2

Critical chain scheduling is a complicated yet powerful tool that involves critical path analysis,resource constraints, and changes in making task estimates in terms of buffers. Some projectmanagers consider critical chain scheduling one of the most important new concepts in projectmanagement. Other managers, however, argue that this concept is the same as critical path analysiswith resource leveling, a technique for resolving resource conflicts by delaying tasks.

Several companies reported successes with critical chain scheduling:· Lucent Technology’s Outside Plant Fiber Optic Cable Business Unit used critical chain

scheduling to reduce its product introduction interval by 50 percent, improve on-time delivery,and increase the organization’s capacity to develop products.

· Synergis Technologies Group successfully implemented critical chain scheduling to managemore than 200 concurrent projects at 9 locations, making on-time delivery its top priority.

· The Antarctic Support Associates project team switched to critical chain scheduling to enablethe Laurence M. Gould research vessel to pass sea-trial tests and be ready to embark on itsvoyage to Antarctica on schedule in January 1998, rather than four months late as had beenanticipated.3

Do it! B-4: Discussing critical chain schedulingExercises

1 What are the important concepts related to critical chain scheduling?

2 ____________ occurs when a resource works on more than one task at a time.

3 How does critical chain scheduling protect tasks on the critical path frombeing delayed?

Program Evaluation and Review TechniqueExplanation Another project time management technique is the Program Evaluation and Review

Technique (PERT)—a network analysis technique used to estimate project durationwhen the activity duration estimates are uncertain. PERT applies the critical pathmethod to a weighted average duration estimate.

PERT uses probabilistic time estimates—duration estimates based on using optimistic,most likely, and pessimistic estimates of activity durations—instead of a specific ordiscrete duration estimate. Similar to the critical path method, PERT is based on aproject network diagram called the PDM method.

To use the PERT method, you calculate a weighted average for the duration estimate of each project



activity using the following formula:PERT weighted average = (optimistic time + 4X most likely time +pessimistic time)/6

The main advantage of PERT is that it attempts to address the risks associated with durationestimates. PERT has three disadvantages: it requires additional work because it requires severalduration estimates; lacks several features that other probabilistic methods offer, and it is rarely used inpractice. In fact, many managers confuse PERT with project network diagrams because the latter areoften referred to as PERT charts.

Do it! B-5: Discussing PERTQuestions and answers

1 What is PERT?

2 What is the main advantage of PERT?

Topic C: Controlling changes to the project scheduleExplanation Controlling changes to project schedules has several associated limitations and concerns. It is

important first to ensure that the project schedule is realistic. Many projects, especially those relatedto IT, are planned with unrealistic schedule expectations. It is also important to ensure discipline andleadership to emphasize the importance of following project schedules and meeting deadlines.Although various tools and techniques assist in developing and managing project schedules, projectmanagers must handle several personnel-related issues to run projects as planned. Project managerscan perform a number of reality checks that help them manage changes to project schedules. Severalother skills also help project managers control schedule changes related to personnel issues.

Reality checks on schedulingOne of the first reality checks a project manager should make is to review the draftschedule included in the project charter. Although this draft schedule might includeonly a project start and end date, the project charter sets initial schedule expectationsfor the project. Next, the project manager and the team must prepare a detailedschedule and seek stakeholders’ approval. To finalize the schedule, it is critical toinvolve and seek commitment from all project team members, senior managers, thecustomer, and other key stakeholders. It is important to create realistic projectschedules and allow for contingencies throughout a project’s life cycle.

Another type of reality check comes from progress meetings with stakeholders. The project manageris responsible for running the project as planned and communicating the progress to key stakeholders,which might be through high-level periodic reviews. Managers might want to review progress onprojects every month. Project managers often illustrate progress with a tracking Gantt chart showingkey deliverables and activities. The project manager needs to understand reasons for changes made tothe original project schedule and the activities that are performed as planned to be able to take aproactive approach to meeting stakeholder expectations. It is essential that the project manager isclear and honest in communicating project status to senior management. By no means should projectmanagers create the illusion of the project operations proceeding as planned when a project is facingserious problems. When serious conflicts arise that might affect the project schedule, the projectmanager must alert senior managers and work with them to resolve the conflicts.

Do it! C-1: Discussing reality checks on schedulingQuestions and answers

1 What are two scheduling reality checks?



2 What is the importance of reality checks?

Managing personnelExplanation Good project managers realize that their main job is to lead the people involved in the project. It’s

their responsibility to coordinate between the project team and the other important project entities tocreate and update the project schedule. Good project managers realize that an important part of theirjob is to lead the human resources involved in the project. Delegating parts of a project scheduleallows the project manager to focus and lead the entire project. Several leadership skills that helpproject managers control schedule changes include:

· Empowerment· Incentives· Discipline· Negotiation

It is important for a project manager to empower the project team to take responsibility for theiractivities. Engaging team members when creating a detailed schedule and providing timely statusinformation empowers them to take responsibility for their actions. As a result, they feel morecommitted to the project.

A project manager can also use financial or other incentives to encourage team members to meetschedule expectations. It might, sometimes, be effective to use coercive power or command to ensureteam members’ respect and to meet deadlines. For example, one project manager started penalizingher team members twenty-five cents each time they delayed submitting the weekly time sheets for aproject. She was amazed at how only a few of her team members were late in their submissions afterthe rule was implemented.

Project managers must also use discipline to manage project schedules. Several project managershandling IT projects discovered that setting firm dates for key project milestones helps minimizeschedule changes. It is easy for scope creep to impact IT projects. Insisting that important scheduledates be met and that proper planning and analysis be completed helps all in the team focus oncompleting the tasks important to the project. This discipline results in meeting project schedules.

Project managers and their team members need to use good negotiation skills. Customers andmanagement often pressure teams to shorten project duration. Some managers blame IT scheduleoverruns on poor estimation, but others state that the real problem is that software developers andother IT professionals might not be able to provide enough or convincing reasons in support of theirestimates. It is important for the project manager and team members to provide sufficient relevantinformation in support of their estimates and learn to negotiate with stakeholders.

Do it! C-2: Discussing people issuesQuestions and answers

1 What are some leadership skills that help project managers handle schedulechanges?

2 Describe an example of using a negative incentive?



3 As a project manager, what leadership skills do you require to controlschedule changes?

Software to assist in time managementExplanation Several types of software are available to assist project managers in project time

management. Software for facilitating communication helps project managers exchangeproject-related information with project stakeholders. Decision support models can helpproject managers analyze various trade-offs that can be made to minimally impact theproject schedule. However, project management software, such as Microsoft Project2003, was designed specifically for performing project management tasks. You can useProject 2003 to draw network diagrams, determine the critical path for a project, createGantt charts, and report, view, and filter specific project time management information.

Project management software can facilitate the creation of project network diagrams and the use ofthe critical path method. Many projects involve hundreds of tasks with complicated dependencies.After you enter the necessary information, project management software automatically generates anetwork diagram and calculates the critical path(s) for the project. The software also highlights in redthe critical path on the network diagram and calculates the free and total float or slack for allactivities. Using project management software eliminates the need to perform cumbersomecalculations manually and allows for “what if” analysis with changes in activity duration estimates ordependencies. Recall that knowing the activities with the maximum slack gives the project manageran opportunity to reallocate resources or make other changes to shorten the project duration or helprun it as planned.

Project 2003 easily creates Gantt charts, which simplify tracking actual schedule performance versusa planned or baseline schedule. It is important, however, to enter actual schedule information if youwant to benefit from using the Tracking Gantt chart feature. Some organizations use e-mail or othercommunications software to send up-to-date task and schedule information to the team memberresponsible for updating the schedule. The team member can then quickly authorize these updates tobe entered directly into the project management software. This process provides an accurate and up-to-date project schedule in the Gantt chart form.

Project 2003 also includes many built-in reports, views, and filters to assist in project timemanagement. For example, you can quickly run a report to list the tasks that are to start in a specifiedtime frame. You can then send a reminder to the team members responsible for completing thesetasks. If you need to present project schedule information to senior managers, you can create a Ganttchart showing only summary tasks or milestones. You can also create custom reports, views, tables,and filters.

Do it! C-3: Using software to aid time managementQuestions and answers

1 Name some of the time management utilities Microsoft Project 2003 provides.

2 Which software do you use to manage time? What advantages have younoticed?

Unit summary: Time management



Topic A In this topic, you learned that activity definition, sequencing, and duration estimating are allimportant processes in project time management. You learned that by determining task dependenciesand then developing a project network diagram, activity sequencing is facilitated.

Topic B In this topic, you learned the different tools and techniques project managers use to developschedules. You also learned that Gantt charts, critical path method, and PERT are effectivetechniques in project schedule development.

Topic C In this topic, you learned how to control changes to the project schedule. Finally, you learned aboutthe various leadership skills and personnel-related issues considered while controlling changes.

Independent practice activity 1 Have you used, or known a manager who uses, some of the techniques discussed in this unit? If

so, how do you, or this manager, feel about network diagrams, critical path analysis, Gantt charts,using project management software, and managing the personnel-related issues involved inproject time management?

Answers might vary.

2 Choose the component that is correctly paired with its definition.

A Activity definition and sequencing—identifying project activities and their order ofcompletion.

B Assessing activity duration—considering and managing factors to alter the original schedule.

C Schedule development— approximating the time needed to complete each project activity.

D Schedule control—allotting activity time frames on a schedule based on resources and cost.

3 Two activities, C and D, are controlled by a finish-to-finish dependency. The lag time betweenActivity C and Activity D is four days. Choose the answer that explains what this means to yourproject.

A Activity C must finish four days before Activity D can start.

B Activity D must finish four days before Activity C can finish.

C Activity C must finish four days before Activity D can finish.

D Activity C must start four days before Activity D can finish.

4 Select the answer that correctly identifies the sequence of activity flow from a project’s start tofinish, and identifies the series of activities that must be completed on schedule for a project tofinish on time.

A Optimal sequence

B Preferred activity order

C Event cycle

D Critical path

5 From the following options, select the benefit of using a Gantt chart.

A It provides a standard format for displaying planned and actual schedule information.

B It provides a schematic display of the logical relationships among project activities.

C It illustrates activity dependencies, so that concurrent activities can be identified.

D It’s useful for visualizing specific types of time relationships.

6 Select the term that correctly describes activities such as crashing, fast tracking, assigning limitedovertime, and implementing shortcuts.

A Limited scope alteration

B Duration compression

C Activity crunching



D Time frame reduction

Endnotes

# Reference

1 Thamhain, H. J. and Wilemon, D. L., “Conflict Management in Project Life Cycles,” SloanManagement Review (Summer 1975).

2 Goldratt, Eliyahu. Critical Chain, Great Barrington, MA, The North River Press, 1997, 218.

3 Avraham Y. Goldratt Institute Web site, www.goldratt.com (January 2001).

U n i t 5Cost management



A Identify the components and principles of costmanagement.

B Discuss the elements of resource planning.

C Discuss cost estimation and identify the techniques usedfor it.

D Discuss cost budgeting and identify the techniques usedfor it.

E Discuss cost control using EVA.

Topic A: Components and principles of costmanagement

Explanation Project cost management includes the processes that ensure a project is completed within theapproved budget. Project managers must ensure projects are well defined with accurate time and costestimates and a realistic budget. The project manager must execute a project in a way that meets thestakeholders’ expectations while keeping the cost low. The project cost management processesinclude:

· Resource planning, which involves determining the resources (team,equipment, and material) and the quantity of each resource to be used for aproject. The output of the resource planning process is a list of resourcerequirements.

· Cost estimation, which involves approximating or estimating the cost of



resources required to complete a project. The main outputs of the costestimating process are cost estimates, supporting detail, and a cost managementplan.

· Cost budgeting, which involves allocating a cost estimate to each work item toestablish a baseline for measuring performance. The main output of the costbudgeting process is a cost baseline.

· Cost control, which involves controlling changes to the project budget. Themain outputs of the cost control process are revised cost estimates, budgetupdates, corrective actions, estimates at completion, and lessons learned.

To understand each process of project cost management, you must first understand the basicprinciples of cost management. Many of these principles are not unique to project management;however, project managers need to understand how these principles relate to their specific projects.

Basic principles of cost managementMany information technology (IT) projects require a good understanding of basicaccounting and finance principles. Project management professionals need to be able topresent and discuss project information in financial as well as technical terms. This isbecause cost management is an important component of project management. Inaddition to net present value analysis, return on investment, and payback analysis,project managers must understand several other cost management principles, concepts,and terms.

Profits

Profits are revenue excluding expenses. To increase profits, a company can increase revenues,decrease expenses, or both. When planning investments in new information systems and technology,it is important to focus on the impact on profits, not just revenues or expenses. You cannot measurethe potential benefits of the system without knowing the profit margin. The profit margin is the ratioof profits to revenue. If revenues of $100 generate $2 as the profit, there is a 2 percent profit margin.If the company loses $2 for every $100 of revenue, there is a –2 percent profit margin.

Life cycle costing

Life cycle costing helps develop an accurate projection of a project’s financial benefits. Life cyclecosting takes into account the total cost of ownership, or development and support cost, for a project.

Cash flow analysis

Cash flow analysis is a study of the cash inflow and outflow. You must perform this analysis todetermine the net present value. Managers must take into account cash flow concerns when selectingprojects for making investments, as the value of the dollar keeps fluctuating. If managers selectseveral projects with high cash flow needs in the same year, the company will be unable to supportall the projects and maintain its profitability. Therefore, it is important to define clearly the year onwhich the dollar amount is based.

Internal rate of return

Internal rate of return (IRR) is the discount rate that makes net present value equal to zero. It is alsocalled the time-adjusted rate of return. Some companies prefer to estimate the IRR instead of or inaddition to net present value and set minimum values required for projects to be selected orcontinued.

Tangible and intangible costs

Tangible and intangible costs and benefits need to be calculated for determining how definable theestimated costs and benefits for a project are. Tangible costs or benefits can be easily measured indollars. In contrast, intangible costs or benefits are difficult to measure in monetary terms. Becauseintangible benefits are difficult to quantify, they are often harder to justify.

Direct, indirect, and sunk costs



Direct costs are those related to a project that can be traced back in a cost-effective way. You canattribute this cost directly to a certain project. For example, the salaries of the team working full-timeon the project and hardware and software purchased specifically for the project are direct costs.Project managers should focus on direct costs because they can control them.

Indirect costs are costs related to a project that cannot be traced back in a cost-effective way. Forexample, the cost of electricity and office supplies in a large building housing several employeesworking on many different projects are indirect costs. Indirect costs are allocated to projects, andproject managers have little control over them.

Sunk cost is the money spent in the past, before starting on a project. When deciding the projects toinvest in or continue, you should not include sunk costs.

Learning curve theory

Learning curve theory states that when items are produced repetitively, the unit cost of the itemsdecreases in a regular pattern over a period. Learning curve theory is used to estimate costs involvedin projects for the production of large quantities of items.

Reserves

Reserves are dollars included in a cost estimate to mitigate cost risk by allowing for any unforeseensituations. Contingency reserves are set aside for situations that may be partially planned for(sometimes called known unknowns) and that are included in the project cost baseline. Managementreserves are set aside for unpredictable situations (sometimes called unknown unknowns). Forexample, if a project manager is unwell for two weeks or if an important supplier goes out ofbusiness, management reserve can be used to cover the costs.

Do it! A-1: Discussing cost managementQuestions and answers

1 What are the main processes involved in cost management?

2 What is cash flow analysis? Why is it done?

3 Compare tangible and intangible costs.

Topic B: Resource planningExplanation To estimate, budget, and control costs, project managers and their teams must determine the physical

resources (team, equipment, and material) and the quantities of the resources that are required tocomplete the project. The nature of the project and the organization’s goals affect resource planning.Expert judgment and planning for alternatives are the tools that assist in resource planning. It isimportant to engage experienced team members and managers in planning because they can utilizetheir expertise from similar projects.

Important questions to answer in resource planning include:· How difficult is it to perform specific tasks on this project?



· Does the project require any unique task as stated in the project’s scopestatement that will impact the selection of resources?

· What is the organization’s history in completing similar projects?· What types of resources (team and material) were utilized in such projects in

the past?· Does the organization have the necessary human resources, equipment, and

material that you can use for performing the work?· Are any organizational policies likely to affect the availability of resources?

A project’s work breakdown structure (WBS), scope statement, historical information, resourceinformation, and policies are important input to answering these questions.

It is important to brainstorm and evaluate alternatives related to resources, especially on projects thatengage human resources from multiple disciplines and companies. Because human resources arecritical for most projects, it is advisable that ideas and information be gathered from different sourcesto help develop alternatives and address resource- and cost-related issues early in a project.

Resource assignmentThere are three ways to assign resources to project activities.

· Assign resources at a constant rate. For example, if 10 days are allotted tocomplete a project and a developer needs 40 hours to complete the job, thedeveloper will work four hours per day for 10 days to complete the project. Theteam member’s time is assigned at a constant rate.

· Assign resources as a total. Using the previous example and assuming that aworkday is eight hours long, the developer will work continuously until the jobis completed and will complete the job in 5 days.

· Assign resources based on availability. For example, when a team member’sschedule does not permit a dedicated engagement, you can assign that memberwork when he or she has time to complete it. For example, the developer maybe assigned to work the first 2 days for 10 hours each and then work 5 hoursper day for the next 4 days to complete the job.

Understanding how resources are assigned to activities

When determining the manner in which to assign resources to a project, it is important to understandhow the project will bill for those resources. For example, if it takes 10 days to develop software andthe developer needs 40 hours to complete the job, you must determine if the project will be billed for10 complete working days or for 40 hours of work. The different ways that the project can be billedfor the developer’s time can impact the project budget.

Do it! B-1: Planning resourcesExercises

1 Why is it important for project managers and their teams to determine thephysical resources and the quantity of these resources?

2 What are the three ways to assign resources to project activities?

3 Select the way in which resources are being assigned in the followingexample: you assign 25 programmers to work on updating the software



continuously until the activity is completed.

A At a constant rate

B Based on availability

C Based on established number standards

D As a total

4 Select the way in which resources are assigned in the following example: youassign 25 programmers to work on updating the software for 2 days each weekfor 6 months.

A Based on established number standards

B At a constant rate

C As a total

Topic C: Cost estimatingExplanation Project managers must invest considerable time in arriving at cost estimates to be able to complete

projects within budget constraints. Project managers must create a comprehensive list of resourcerequirements and then collaborate with members of their team to calculate the cost estimates for theseresources. This section describes the various types of cost estimates, tools and techniques for costestimation, and the problems associated with IT projects. It provides a detailed example of costestimation for an IT project.

Types of cost estimatesOne of the main outputs of project cost management is the cost estimate. Project managers normallyprepare several types of cost estimates. These include:

· Rough order of magnitude· Budgetary· Definitive

These estimates vary primarily in their use, application, and accuracy.

Rough order of magnitude

A rough order of magnitude (ROM) estimate provides a rough idea of the costs involved in a project.This estimate is calculated early in a project, or even before it is officially started. Project managersand senior managers use this estimate to make project selection decisions. The timeframe for this typeof estimate is often three or more years prior to project completion. The accuracy of a ROM estimatetypically ranges from –25 percent to +75 percent, which means that the project’s actual costs can be25 percent less or 75 percent more than the ROM estimate. For estimates related to IT projects, theaccuracy range is often much more. Many IT professionals automatically double estimates forsoftware development because of the risk of cost overruns on these projects.

Budgetary estimate

A budgetary estimate is used to allocate money according to an organization’s budget. Manyorganizations create budgets for projects planned for the next two years. Budgetary estimates aremade one to two years prior to project completion. The accuracy of budgetary estimates ranges from–10 percent to +25 percent, which means that actual cost can be 10 percent less or 25 percent morethan the budgetary estimate.

Definitive estimate

A definitive estimate provides the most accurate estimate of project costs. Definitive estimates areused for making purchasing decisions for which accurate estimates are required and for estimatingfinal project costs. For example, if a project involves purchasing 1,000 personal computers from a



vendor over the next three months, a definitive estimate is required to aid in evaluating vendorproposals and in allocating funds for the purchase. Definitive estimates are made one year or lessprior to project completion. The accuracy of this type of estimate ranges from –5 percent to +10percent, which means that actual costs can be 5 percent less or 10 percent more than the definitiveestimate.

The following table summarizes the three basic types of cost estimates.

Type ofestimate

When done Why done How accurate?

ROM Very early in the projectlife cycle, often 3-5 yearsbefore project completion.

Provides estimate of costfor selection decisions.

–25% to +75%

Budgetary Early, 1–2 years beforethe project start.

Adds dollars in thebudget plans.

–10% to +25%

Definitive Later in the project, lessthan 1 year after the startof the project.

Provides details forpurchases and estimatesactual costs.

–5% to +10%

Two additional output of the cost estimating process are supporting details and a cost managementplan. It is important to include supporting details with all cost estimates. These details include theground rules and assumptions used in creating the estimate, a description of the project (such as thescope statement and WBS) used as a basis for the estimate, and details of the cost estimation toolsand techniques used to create the estimate. This supporting detail makes it easier to prepare anupdated estimate or a similar estimate when required.

A cost management plan is a document that describes how cost variances will be managed on aproject. For example, if a definitive cost estimate provides the basis for evaluating vendor costproposals for all or part of a project, the cost management plan describes how to respond to proposalsthat vary from the estimates. Some organizations assume that a cost proposal within 10 percent of theestimate is acceptable and negotiate only items more than 10 percent higher or 20 percent lower thanthe estimated costs.

Do it! C-1: Discussing cost estimationQuestions and answers

1 Describe the types of cost estimates.

2 What are the various types of output of the cost management process?

3 What is a cost management plan?

Cost estimation tools and techniques



Explanation There are four basic tools and techniques you can use for cost estimating:· Analogous estimating· Bottom-up estimating· Parametric modeling· Computerized tools

Analogous estimating

Analogous estimating, also called top-down estimating, uses the actual cost of a previous, similarproject as the basis for estimating the current project’s cost. It is a form of expert judgment. Thismethod costs less than the others, but it is also less accurate. Analogous estimates are most reliablewhen the previous projects are similar in fact and not just appearance. In addition, the groupspreparing estimates must consist of experts to determine whether specific parts of the project will bemore expensive or less expensive than analogous projects. However, if the project to be estimatedinvolves a new programming language or working with a new type of hardware or network, theanalogous approach can easily result in a low estimate.

Bottom-up estimating

Bottom-up estimating involves estimating each work item and adding them to obtain the project total.The size of the each work item and the experience of the estimators drive the accuracy of theestimates. If a detailed WBS is available for a project, the project manager can obtain cost estimatesfor each work package from the team member handling that package. All the estimates would thenbe added to create estimates for each higher-level WBS item and finally, for the entire project. Usingsmall work items increases the estimate’s accuracy because the team assigned for the work developsthe estimate instead of a third party that might be unfamiliar with the work. The drawback withbottom-up estimates is that they are usually time-intensive and therefore expensive to develop.

Parametric modeling

Parametric modeling uses project characteristics (parameters) in a mathematical model to estimateproject costs. For example, a parametric model might provide an estimate of $50 per line of code fora software development project based on the programming language the project is using, the level ofprogrammers’ expertise, and the size and complexity of the data involved. Parametric models aremost reliable when the historical information used to create the model is accurate, the parameters arereadily quantifiable, and the model is flexible in terms of the size of the project. For example, theengineers at the McDonnell Aircraft Company developed a parametric model for estimating aircraftcost based on a large historical database. The model included the following parameters: the type ofaircraft (fighter aircraft, cargo aircraft, or passenger aircraft), the maximum attainable speed of theaircraft, the thrust-to-weight ratio of the engine, the estimated weights of various parts of the aircraft,the number of aircrafts produced, and the amount of time available to produce them. In contrast tothis sophisticated model, some parametric models involve simple rules of thumb. In another example,a large office automation project might use a ballpark figure of $10,000 per workstation based on ahistory of similar office automation projects developed during the same time period. Morecomplicated parametric models are computerized.

Computerized tools

Computerized tools, such as spreadsheets and project management software, can simplify workingwith different cost estimates and cost estimation tools. Computerized tools, when used properly, canalso help improve the accuracy of estimates. In addition to spreadsheets and project managementsoftware, more sophisticated tools are available for estimating software project costs.

Barry Boehm is well known in the field of software development and cost estimation. He developedthe popular Constructive Cost Model (COCOMO), a parametric model for estimating softwaredevelopment costs based on parameters, such as the lines of source code or function points. Functionpoints are technology-independent assessments of the functions involved in developing a system. Forexample, the number of input and output, the number of files maintained, and the number of updatesare examples of function points. COCOMO II is a new, computerized version of Boehm’s model thatallows you to estimate the cost, effort, and schedule when planning a new software developmentactivity. Boehm suggests that only algorithmic or parametric models do not suffer from the limits of



human decision-making capability. As a consequence, Boehm and many other software experts favorusing algorithmic models when estimating software project costs.

Do it! C-2: Using tools and techniques for cost estimationExercises

1 Your company is building a 10,000 square foot office complex in a districtwhere real estate costs $250 per square foot. If you estimate the cost bymultiplying these figures, which type of estimating are you using?

2 Match the following list of cost-estimating techniques with their definitionsgiven below: bottom-up estimating, parametric estimating, and top-downestimating.

Requiring senior managers to examine historical datafrom similar projects to develop a cost estimate forthe current project

Developing a cost estimate for each work package inthe WBS and then compiling the total cost estimatefrom this information

Using historical data and other variables to calculatestatistical relationships

Problems with IT cost estimatesExplanation Although many tools and techniques are available to assist in creating project cost estimates, many

IT project cost estimates, especially those involving new technologies or software development, maystill be inaccurate. In his book Controlling Software Projects, Tom DeMarco, a well-known authoron software development, suggests four reasons for these inaccuracies and some ways to overcomethem.

· Developing an estimate for a large software project is a complex task requiringa significant amount of effort. Many estimates must be done quickly and beforeclear system requirements are produced. The more precise, later estimates arerarely less than the earlier estimates for IT projects. It is important to rememberthat estimates are made at various stages of the project, and project managersneed to explain the rationale for each estimate.

· Software developers providing cost estimates may often lack the necessaryexperience with cost estimation, especially for large projects. There might alsonot be enough accurate and reliable project data available on which to baseestimates. If companies use good project management strategies and a history ofrecording project information, including estimates, it should help them arrive atbetter estimates. Training and mentoring IT professionals on cost estimationalso improves cost estimates.

· Human beings have a bias toward underestimation. For example, senior ITprofessionals or project managers might make estimates by disregarding theskills and abilities of the project team. Estimators might also not allow for extracosts needed for integration and testing on large IT projects. It is important forproject managers and senior managers to review estimates and ask importantquestions to make sure the estimates are not biased.

· Management might use an estimate to bid for a major contract or get internalfunding. It is important for project managers to make accurate cost andschedule estimates and to use their leadership and negotiation skills for thesame.



Do it! C-3: Discussing problems with IT cost estimatesQuestions and answers

1 What is the main problem with IT cost estimate?

2 How can you resolve this problem?

Topic D: Cost budgetingExplanation Project cost budgeting involves allocating the project cost estimate to each work item,

which is based on the project’s WBS. The WBS, therefore, is the required input to thecost budgeting process. Likewise, the project schedule is required to allocate costs overtime. The main goal of the cost budgeting process is to prepare budgetary estimates andproduce a cost baseline for measuring project performance.

Most organizations have a well-established process for preparing budgets. For example, the companyinvolved with a Business Systems Replacement requires budget estimates to include the number offull-time equivalent (FTE) staff—often referred to as headcount—for each year of the project. Thisnumber provides the basis for estimating total compensation costs each year, as shown in Exhibit 5-1.The budget also requires input in the categories of consultant and purchased services, travel,depreciation, rents or leases, and other supplies and expenses. Notice that the total cost for the IS&Tbudget for FY97, $1,800,000, is based on the costs highlighted in the cash flow analysis in Exhibit5-1 ($600,000 for total purchased costs plus $1,200,000 for IS&T effort in FY97).

Exhibit 5-1: Project budget estimates for business systems replacement for FY97 and theirexplanations

Exhibit 5-1 also includes explanations to support budget estimates. Staff from the IS&T departmentincluded nine programmer/analysts, two database analysts, and two infrastructure technicians. Theircompensation is based on employee change notices (ECNs), which provide actual salary and benefitinformation for employees when they are hired or transferred within the company. Notice that thecompensation costs are the main part of the budget estimate. For compensation costs to form thelargest part of cost estimates is typical of many IT projects. Notice that the budget amount forcompensation includes an allowance for raises and overload support or overtime pay. Otherexplanations include brief descriptions of the travel, depreciation, rents or leases, and other suppliesand expenses for the project. It is important to document assumptions and explanations whenpreparing cost estimates and cost budgets.

In addition to providing input for budgetary estimates, cost budgeting provides a cost baseline. A costbaseline is a time-phased budget that project managers use to measure and monitor cost performance.Estimating costs for each major project activity over time provides project managers and seniormanagers with a foundation for project cost control.

Standards to be applied when establishing budgetsThere are two types of standards that project managers must consider when establishing projectbudgets:

· Work results



· Performance results

The work results of a project are qualitative and include processes that personnel complete and thephysical environment in which they work. It is important to keep these issues in mind whenallocating budgets, because the money allocated can affect work results.

The performance results of a project are quantitative and regulate the quality and quantity of workcompleted and the amount of time required to complete the work. When allocating budgets, it isimportant to keep in mind that the amount of money allocated for a project can affect performanceresults.

Cost management plan

A cost management plan is developed to provide guidelines for the project manager, when dealingwith cost variances. The extent of detail included in a cost management plan is dependent on theneeds of the project stakeholders. The plan should outline steps to be taken if the actual project costsare higher or lower than the approved project budget.

To make a project management plan useful, the accumulated costs of the project must always beavailable by looking at the cost baseline, which is displayed as an S-curve. Project stakeholders canthen compare the approved budget to the cost baseline to determine if the project costs are asplanned.

Do it! D-1: Budgeting costQuestions and answers

1 What is a cost baseline?

2 What are the two standards to be kept in mind while establishing standards forcost budgeting?

3 Why is a cost management plan developed?

Capital budgetingExplanation Organizations choose projects in which the benefits exceed the costs. These benefits can be financial

or non-financial. Capital budgeting is a technique used to determine the financial benefits that aproject can bring to an organization. In addition, capital budgeting involves the evaluation of projectsthat require the purchase of major fixed assets, such as buildings and equipment.

It is important to understand some specific concepts when learning about capital budgeting.· Payback period· Discounted cash flows· Net present value· Internal rate of return

Payback period

A payback period is the amount of time that an organization needs to recover its initial investmentand become profitable. To recover its initial investment, an organization calculates expected cashinflows. For example, if a building costs an organization $30,000 to build, and the expected inflowsare $6000 per year, the payback period would be 5 years.



However, it is important to realize that using the payback period technique is not a precise method ofcapital budgeting because it does not take into account the time value or the effects of inflation on thevalue of today’s dollars. In the previous example, the $6000 inflow in the fifth year would notnecessarily be worth the amount it is today.

Discounted cash flows

It is important to understand that a dollar today is worth more than a dollar 10 years from now.Discounting cash flows enable you to discount future values of money to their present values tocompare them. This can be an effective way to assess the value of an investment. The equation to usefor discounted cash flows is:

PV = [CF1/(1 + k)1] + [CF2/(1 + k)

2] . . . [CFn/(1 + k)n]

In this equation, PV represents the present value of the cash flow stream, n represents the number ofyears, CFn represents the cash flow amount during period n, and k is the investment interest rate. Forexample, you want to determine the present value (PV) of an uneven cash flow stream (CF1, CF2,and so on) over a three-year time period (n), at an interest rate of 10% (k). The asset’s cash flowstream includes $300 in the first year, $400 in the second year, and $500 in the third year. Tocalculate the PV of this cash flow stream, plug the appropriate numbers into the equation:

PV = [300/(1 + .10)1] + [400/(1 + .10)2] . . . [500/(1 + .10)3] = $978.96

Net present value

Net present value, or NPV, is a capital budgeting equation that compares the discounted cash inflowsagainst the initial investment to make sure that the inflows are large enough to recover theinvestment. Completing the NPV enables an organization to determine if an investment isworthwhile. To calculate NPV, subtract the initial investment from the sum of discounted cash flows.If the NPV is negative, you should reject the investment. If the NPV is positive, you should acceptthe investment.

Do it! D-2: Budgeting capitalExercises

1 What will the payback period be if an organization purchased a piece ofequipment for $90,000 and expects it to produce inflows of $3000 per year?

A 30 years

B 3 years

C 35 years

D 18 years

2 Which of the following capital budgeting concepts enables you to reducefuture values of money to the present value of money in order to comparethem?

A Payback period

B Discounted cash flows

C Net present value

D Internal rate of return

3 Determine why using a project’s payback period is not completely accurate.

A Using the payback period doesn’t take into account the time value ofmoney or the effects of inflation.

B Using the payback period doesn’t consider revised project strategies andgoals.

C Using the payback period doesn’t account for a project’s long-termfinancial growth and time management advantages.



D Using the payback period doesn’t consider adjustments to the project’stime frame or the project’s scope.

4 Determine whether the following project was worthwhile: Company Ainvested $2,000,000 to streamline its production process and expected cashinflows of $1,850, 000 over the long term.

A These amounts don’t provide enough information to determine whether ornot Company A’s investment was worthwhile.

B Using the payback period doesn’t account for a project’s long-termfinancial growth and time management advantages.

C Based on these amounts, Company A was correct in investing the moneyto streamline its production process.

Topic E: Cost controlExplanation Project cost control includes monitoring cost performance, ensuring that only

appropriate project changes are included in a revised cost baseline, and informingproject stakeholders of authorized changes that will affect cost. The cost baseline,performance reports, change requests, and the cost management plan are input for thecost control process. The output of this process includes revised cost estimates, budgetupdates, corrective action, revised estimates for project completion, and lessonslearned.

Several tools and techniques assist in project cost control. A change control system must be used todefine procedures for changing the cost baseline. This cost control change system is part of theoverall change control system of a project. Because many projects do not progress exactly asplanned, they often require new or revised cost estimates, as well as estimates to evaluate alternativecourses of action. Another crucial tool for cost control is performance measurement. Although manygeneral accounting approaches are available for measuring cost performance, one powerful costcontrol tool is unique to the field of project management—earned value analysis (EVA).

Earned value managementEarned value management (EVM) is a project performance measurement technique thatintegrates scope, time, and cost data. Earned value management is sometimes calledearned value analysis (EVA), which should not be confused with economic valueadded, also referred to as EVA. Given a cost performance baseline, project managersand their teams can determine how well the project is meeting scope, time, and costgoals by entering actual information and then comparing it to the baseline. A baselineis the original project plan plus the approved changes. Factual information includeswhether or not a WBS item was completed or approximately how much of the workwas completed, when the work actually started and ended, and how much the workcost.

Exhibit 5-2 shows the Business Systems Replacement (BSR) project’s input form for collectinginformation for cost control and earned value management. This internal company form includes thefollowing information.

· Descriptive information. The top line of this form lists the WBS number for an activity, adescription of the activity, a revision number, and a revision date. This example of input formreports information for WBS Item 6.8.1.2, a level 4 WBS activity (based on the numberingscheme) called “Design Interface Process-Customer Information.”

· Assignment information. This activity is assigned to a team member with the initials SMC.Other assignment information includes the responsible person’s role and the availability innumber of hours per day for the activity.

· Forecast information. The BSR project used a PERT weighted average to estimate thenumber of hours required to complete the activities. The PERT weighted average uses mostlikely, optimistic, and pessimistic estimates. In this case, the PERT calculation results in a



planned effort of 30 hours. The planned duration is five days.· Description. This section provides a detailed description of the activity.· Assumptions. Major assumptions related to this particular WBS item are documented.

· Results/Deliverables. This section briefly lists the main outcomes from the WBS item.· Dependencies. This section lists the WBS number for any predecessor or successor activities.

Exhibit 5-2: Cost control input form for a business systems replacement project

Because the activity has not yet started, it does not include the actual number of hours or the actualduration for the activity. Actual cost, actual duration, and percentage complete information is requiredto perform EVM.

Do it! E-1: Controlling costExercises

1 What is EVM?

2 Which one of the following best defines cost control?

A Cost control involves identifying changes to the cost baseline and thenmanaging the changes.

B Cost control involves deciding the resources required to complete projectactivities.

C Cost control entails estimating the cost of the resources needed tocomplete a project.

D Cost control involves distributing overall cost estimates to specific projectactivities.

Performing Earned Value Analysis (EVA)Explanation Earned value management involves calculating three values for each activity or summary activity

from a project’s WBS.· The planned value (PV), formerly called the budgeted cost of work scheduled

(BCWS), also called the budget, is that portion of the approved total costestimate planned to be spent on an activity during a given period. The followingtable shows an example of earned value calculations. Suppose a project includesa summary activity of purchasing and installing a new Web server. Supposefurther that according to the plan, it will take one week and cost a total of$10,000 for the labor hours, hardware, and software involved. The plannedvalue (PV) for that activity that week is $10,000.

· The actual cost (AC), formerly called the actual cost of work performed(ACWP), is the total direct and indirect costs incurred in completing work on anactivity during a given period. For example, suppose it actually took two weeksand cost $20,000 to purchase and install the new Web server. Assume that$15,000 of these actual costs was incurred during week 1 and $5,000 wasincurred during week 2. These amounts are the actual cost (AC) for the activityeach week.

· The earned value (EV), formerly called the budgeted cost of work performed(BCWP), is the percentage of work actually completed multiplied by theplanned value. Again, using the example in the following table, suppose youestimated the activity of purchasing and installing a Web server to be 75%



complete after week 1. To calculate the earned value (EV) for week 1, youmultiply the planned value of $10,000 for week 1 by 75 percent to obtain anearned value of $7,500 for the activity at that point in time.

Activity Week 1 Week 2 Total % Complete

after week 1Earned valueafter week 1(EV)

Purchase Webserver

10,000 0 10,000 75% 7,500

Planned value(PV)

10,000 0 10,000

Actual cost (AC) 15,000 5,000 20,000

Cost variance(CV)

–7,500

Schedulevariance (SV)

–2,500

Costperformanceindex (CPI)

50%

Scheduleperformanceindex (SPI)

75%

The following table summarizes the formulas used in EVA. Note that all these formulas start withEV, the earned value. Variances are calculated by subtracting the actual cost or planned value fromEV, and indexes are calculated by dividing EV by the actual cost or planned value.

The earned value calculations in the previous table are carried out as follows:EV = $10,000 x 75% = $7,500CV = 7,500 – 15,000 = –7,500SV = 7,500 – 10,000 = –2,500CPI = 7,500/15,000 = 50%SPI = 7,500/10,000 = 75%

Term FormulaEarned value EV = PV to date X percent complete

Cost variance CV = EV – AC

Schedule variance SV = EV – PV

Cost performance index CPI = EV/AC

Schedule performance index SPI = EV/PV

Cost variance (CV) is the budgeted cost of work performed minus the actual cost ofwork performed. In other words, cost variance shows the difference between theestimated cost of an activity and the actual cost of that activity. If cost variance isnegative, it means that performing the work cost more than planned. If cost variance ispositive, it means that performing the work cost less than planned.

Schedule variance (SV) is the budgeted cost of work performed minus the budgetedcost of work scheduled. Schedule variance shows the difference between the scheduledcompletion of an activity and the actual completion of that activity. A negativeschedule variance means it took longer than planned to perform the work, and a



positive schedule variance means it took less time than planned to perform the work.

The cost performance index (CPI) is the ratio of work performed to actual costs andcan be used to estimate the projected cost of completing the project. If the costperformance index is equal to one, then the budgeted and actual costs are equal, or thecosts are exactly as planned. If the cost performance index is less than 1 or less than100 percent, the project is exceeding its budget. If the cost performance index isgreater than 1 or more than 100 percent, the project is within its budget.

The schedule performance index (SPI) is the ratio of work performed and workscheduled. It can be used to estimate the projected time to complete the project. Similarto the cost performance index, a schedule performance index of 1 or 100 percentmeans that the project is according to the schedule. If the schedule performance indexis greater than 1 or 100 percent, then the project is ahead of schedule. If the scheduleperformance index is less than 1 or 100 percent, the project is behind schedule.

Note that, in general, negative numbers for cost and schedule variance indicate problems in thoseareas. The project will cost more than planned or will take longer than planned. Likewise, CPI andSPI of less than 100 percent also indicate problems.

Earned value calculations for all project activities (or summary level activities) are required toestimate the earned value for the entire project. Some activities may be over budget or behindschedule, but others may be under budget and ahead of schedule. By adding all the earned values forall project activities, you can determine how the entire project is performing.

Exhibit 5-3 provides sample earned value information for a one-year project. This project had aplanned total cost of $100,000. The spreadsheet shows the actual cost and percentage completeinformation for the first five months, or through the end of May. Notice the “% Complete” columnon the upper-right side, or in column O, of the spreadsheet. The EV for each activity is calculated bymultiplying the percent complete value with the planned or budgeted cost. The “Monthly Actual”row (row 15 of the spreadsheet) shows the actual cost each month for the project’s activities throughMay. By calculating the total budgeted or planned costs, the total actual costs, and the earned valuecosts, you can determine the cost variance, schedule variance, cost performance index, and scheduleperformance index for the entire project (see cells A18 through B25 in Exhibit 5-3.

Exhibit 5-3: Earned value calculations for a one-year project after five months of operations

In this example, the cost variance is –$9,000, and the schedule variance is –$2,000. These valuesmean that the project is both over budget and behind schedule after five months. The costperformance and schedule performance indexes are 83 percent and 96 percent, respectively. You canuse the SPI to calculate the time required to complete the project. For example, in Exhibit 5-3 theestimated cost at completion is $120,455, or $100,000/83 percent. The estimated time to complete theproject is 12.55 months, or 12 months/96 percent (see cells A26 through B27).

You can graph earned value information to track project performance. Exhibit 5-4 shows an earnedvalue chart for the one-year sample project from Exhibit 5-3. The chart includes:

· Planned value (PV), the cumulative planned amounts for all activities by month. Note that theplanned value line extends for the estimated length of the entire project.

· Actual cost (AC), the cumulative actual amounts for all activities by month.· Earned value (EV), the cumulative earned value amounts for all activities by month.· Budget at Completion (BAC), the original total budget for the project, or $100,000 in this

example. The BAC point is plotted on the chart at the original time estimate of twelve months.· Estimate at Completion (EAC) estimated to be $120,455. This EAC point is plotted on the

chart at the estimated time to complete in 12.55 months.

Exhibit 5-4: Earned value chart for the project after five months

Viewing earned value information in chart form helps you visualize how the project is performing.For example, you can see the planned performance by looking at the PV (or BCWS) line. If the



project progresses as planned, it will complete in 12 months and cost $100,000, which is representedby BAC. In this example, the actual cost of work performed line is always to the right or above theEV (or BCWP) line. When this is the case, costs are equal to or more than planned. The PV line ispretty close to the EV line, just slightly higher for the last month. This relationship means that theproject progressed on schedule until the last month, when the project got a little behind schedule.

Senior managers overseeing multiple projects often like to see performance information in a graphicform, such as this earned value chart. Earned value charts allow you to see quickly how projects areperforming. If there are serious cost and schedule performance problems, senior managers mightdecide to terminate projects or take other corrective action. The estimates upon project completion areimportant input to budget decisions, especially if total funds are limited. EVA is an importanttechnique because when used effectively, it helps senior managers and project managers evaluateprogress and make sound management decisions.

Earned value analysis, however, is not used on many projects outside of government agencies andtheir contractors for two reasons: its focus on tracking actual performance versus plannedperformance and the importance of percentage completion data in making calculations. Manyprojects, particularly IT projects, lack good planning information, therefore, tracking performanceagainst a plan might produce misleading information. Several estimates are made on IT projects, andkeeping track of the latest estimate and the actual costs associated with it can be cumbersome. Inaddition, estimating percentage completion of tasks might produce misleading information. Whatdoes it really mean to say that a task is 75 percent complete after three months? Such a statement isoften not synonymous with saying the task will be finished in one more month or after spending anadditional 25 percent of the planned budget.

To make EVA easier to use, organizations can modify the level of detail and still reap the benefits ofthe technique. For example, you can use percentage completion data such as 0 percent for items notyet started, 50 percent for items in progress, and 100 percent for completed tasks. Till the time theproject is defined in detail, this simplified percentage completion data provides enough summaryinformation to allow managers to see a project performance. You can obtain very accurateinformation about total project performance by using these simple percentage complete amounts.

Earned value analysis is the primary method available for integrating performance, cost, and scheduledata. It can be a powerful tool for project managers and senior managers to use in evaluating projectperformance.

Do it! E-2: Calculating EVAExercises

1 Calculate the cost variance for the following example:

Company A’s office construction team estimated that the budget for laying thebuilding’s carpet should be $35,000. However, after the work was completed,the cost was $40,000.

A $5000

B $75,000

C –$75,000

D –$5000

2 If the cost variance for laying the carpet is –$5000, determine if Company Aoverspent, underspent, or spent on budget to complete this activity.

A Company A underspent its budget to carpet the premises.

B Company A overspent its budget to carpet the premises.

C Company A’s budget is right on track after laying the carpet.

3 Calculate the schedule variance in the following example:

For landscaping, the budgeted cost of work performed is $25,000, and thebudgeted cost of work scheduled is $65,000.



A $90,000

B –$90,000

C $40,000

D –$40,000

4 Determine the project’s status in the following example:

During the one-year update of Company A’s office construction project, theanalysis showed that the PV (or BCWS) was $1,000,000, the AC (or ACWP)was $500,000, and the EV (or BCWP) was $750,000.

A The project operated within its budget but was behind schedule.

B The project operated over its budget and was behind schedule.

C The project operated both on schedule and according to the assignedbudget.

D The project operated within its budget but ahead of its schedule.

Unit summary: Cost managementTopic A In this topic, you learned that project cost management includes the processes that ensure a project is

completed within the approved budget. Then, you learned some basic accounting and financeprinciples including, profits, life cycle costing, cash flow analysis, internal rate of return, tangibleand intangible costs, direct, indirect, and sunk costs, learning curve theory, and reserves.

Topic B In this topic, you learned about resource planning, which constitutes the first component of costmanagement. Next, you learned about resource assignment. You learned that you can assignresources at a constant rate, assign resources as a total, and assign resources based on availability.

Topic C In this topic, you learned about cost estimation. Then, you learned about the types of cost estimates:rough order of magnitude, budgetary, and definitive. Next, you learned that a cost managementplan is a document that describes how cost variances will be managed on a project. Then, youidentified the tools and techniques you can use for cost estimating. You also discussed problems withIT cost estimates.

Topic D In this topic, you learned about cost budgeting. Then, you learned about the standards that projectmanagers must consider when establishing project budgets: work results and performance results.Next, you learned about capital budgeting and its concepts.

Topic E In this topic, you learned about cost control. Then, you learned about Earned Value Analysis,which is one of the important tools for cost control. Next, you learned how to calculate earnedvalue, cost and schedule performance indices, and cost and schedule variances. You also learnedabout Budget at Completion and Estimate at Completion.

Independent practice activity 1 Given the following information for a one-year project, answer the following questions. (Recall

that PV, or BCWS, is the budgeted cost of work schedule, EV, or BCWP, is the earned value orbudgeted cost of work performed, AC, or ACWP, is the actual cost of work performed, and BACis the budget at completion.)· PV or BCWS = $23,000· EV or BCWP = $20,000· AC or ACWP = $25,000· BAC = $120,000

What are the cost variance, schedule variance, cost performance index (CPI), and scheduleperformance index (SPI) for the project?



CV = EV – AC = 20,000 - 25,000 = -5,000

SV = EV – PV = 20,000 – 23,000 = -3,000

CPI = EV / AC = 20,000 / 25,000 = 80%

SPI = EV / PV = 20,000 / 23,000 = 87%

How is the project doing? Is it ahead of schedule or behind schedule? Is it under budget or overbudget?

Because the CPI is less than 100% (it’s 80%), the project is exceeding its budget.

Because the SPI is less than 100% (it’s 87%), the project is behind schedule.

Use the SPI to estimate how long it will take to finish this project.

The project is scheduled for 1 year; therefore, 12months / SPI = 12 / 87 = 13.79 months.

2 Create a cost estimate for building a new state-of-the art multimedia classroom for yourorganization within the next six months. The classroom should include 20 high-end personalcomputers with appropriate software, a network server, Internet access for all machines, a teacherstation, and a projection system. Be sure to include all personnel costs associated with the projectmanagement for this project. Document the assumptions you made in preparing the estimate andprovide explanations for key numbers.

Answers might vary.

U n i t 6Quality management



A Explain the processes of project quality management anddescribe quality planning.

B Discuss quality assurance and its importance.

C Discuss quality control and identify the tools andtechniques to implement it.

Topic A: Quality planningExplanation The International Organization for Standardization (ISO) defines quality, as “the

totality of characteristics of an entity that bear on its ability to satisfy stated or impliedneeds.” You can also define quality based on conformance to requirements and fitnessfor use. Conformance to requirements means the project’s processes and products meetall specifications. For example, if the scope statement requires delivery of 100 Pentium4 computers, you can easily check whether computers of the correct configuration aredelivered. Fitness for use means a product can be used as intended. For example, if thePentium 4 computers were delivered with one or more components missing, thecomputers will not be fit for use.



Quality must be viewed at an equal level with project scope, time, and cost. If stakeholders are notsatisfied with a project’s quality or its resulting products, the project team will need to makeadjustments to scope, time, and cost to meet the stakeholder’s expectations. Meeting documentedrequirements for scope, time, and cost is not sufficient. For stakeholder’s satisfaction, the projectteam must develop a good working relationship with all stakeholders and understand their stated orimplied needs.

The main purpose of project quality management is to ensure that a project meets the needs forwhich it was undertaken. It involves three processes:

· Quality planning includes identifying and meeting the quality standardsrelevant to the project. Incorporating quality standards into project design is akey part of quality planning. For an information technology (IT) project, qualitystandards may include allowing for system growth, planning a reasonableresponse time for a system, or ensuring consistent and accurate information.Quality standards can also apply to IT services. For example, you can setstandards to limit the time taken by a help desk to answer queries or ship areplacement for a hardware item.

· Quality assurance involves continuously evaluating overall project performanceto ensure that the project meets the relevant quality standards. The qualityassurance process involves taking responsibility for quality both during theproject and at the end of the project. Senior management must emphasize theroles of employees in quality assurance, especially the role of senior managers.

· Quality control involves monitoring specific project results to ensure that theycomply with the quality standards and identifying ways to improve the quality.This process is often associated with the technical tools and techniques ofquality management, such as Pareto charts, quality control charts, and statisticalsampling.

Project quality planningThe first step to ensure project quality management is planning, which refers to the ability toanticipate problem situations and prepare action plans to achieve the desired outcome. The currentthrust in modern quality management is the prevention of defects through a program for selecting theright resource, training the team in quality standards, and planning a process that ensures achievementof the desired result. In project quality planning, it is important to identify quality standards relevantto each project and then meet these standards both in products and the processes of the project.

Design of experiments is a quality technique that helps identify variables thatmaximally influence the outcome of a process. Understanding the variables thataffect the outcome is a crucial part of quality planning. For example, computer chipdesigners might want to determine a combination of materials and equipment toproduce reliable chips at a reasonable cost.

Planning also involves communicating the correct actions clearly and completely tothe team for ensuring quality. While planning for ensuring quality in projects, youmust describe important factors that directly contribute to meeting the customer’srequirements. Organizational policies related to quality, project’s scope statementand product descriptions, and related standards and regulations are essential inputfor the quality planning process. The main outputs of quality planning are a qualitymanagement plan and checklists to ensure quality throughout the project life cycle.

It is often difficult to completely understand the performance dimension of IT projects. Even ifhardware, software, and networking technology remain constant, it is often difficult for customers toexplain their requirements clearly. Important scope aspects of IT projects that affect quality includefunctionality and features, system output, performance, reliability, and maintainability.

· Functionality is the degree to which a system performs its intended function.Features are the special characteristics that appeal to users. It is important toclarify the business functions and features that the system must perform, andthe functions and features that are optional.

· System output refers to the screens and reports that the system generates. It isimportant to define clearly the types of screens and reports for a system.



· Performance addresses how well a product or service performs the customer’sintended use. To design a system with high-quality performance, projectstakeholders must address issues such as the volumes of data and transactionsthat the system can handle, the number of simultaneous users that the systemcan handle, the projected growth rate of the number of users, the type ofequipment that the system must use, and the response time for aspects of thesystem under different circumstances.

· Reliability is the ability of a product or service to perform as expected undernormal conditions without unacceptable failures.

· Maintainability addresses the ease of maintaining a product. Most IT productscannot reach 100 percent reliability, but stakeholders must define theirexpectations.

These aspects of project scope are just a few requirements issues related to quality planning. Projectmanagers and their teams must consider all these project scope issues to determine quality goals forthe project. The project’s customers must also understand their role in defining the most criticalquality needs for the project and constantly communicate these needs and expectations to the projectteam. Because most IT projects involve requirements that might be flexible, it is important for allproject stakeholders to work together to balance the scope, time, cost, and quality dimensions of theproject. Project managers, however, are responsible for quality management on their projects.According to Deming’s philosophy, 85% of all quality problems are management problems.

Issues addressed by quality management

Project managers and team members should carefully examine specific issues during project qualitymanagement. Some important quality management issues are:

· Error-prevention, which eliminates errors before they occur.· Accountability, which means that the project manager is ultimately responsible

for making sure the resources necessary for successful project completion areavailable to team members.

· Activity verification, which ensures that each activity is executed as planned.· Lessons learned from past projects, which enable the project team to create

better products, provide better service, attract new customers, retain existingcustomers, and regain former customers.

Quality plans

Quality plans are guidelines set by the project manager to maintain product standards. Some goals ofquality plans include:

· Making sure products are fit for use when they reach customers. Products that requireassembly by a customer are considered fit for use unless parts are damaged or missing.

· Fostering customer satisfaction by providing quality products and efficient customer service.· Developing products that conform to customers’ needs and expectations.

Do it! A-1: Addressing quality management issuesQuestions and answers

1 Which issues should be addressed during project quality management?

2 What are the goals of quality plans?



3 Mr. Harris, a project manager, needs each of his team members to list theresources required for successful completion of the project. Which qualitymanagement issue is he trying to address?

Initial planning of a projectExplanation Quality planning in a project involves anticipating and preparing for positive and negative situations

that might arise during a project. The following should be included in initial project planning:· Network planning arranges project activities in their logical order of

completion and diagrams the activities for visual reference.· Time analysis allows comparison between estimated and actual activity

durations.· Resource analysis allows comparison between the quantity of resources

allocated and the actual quantity of resources used for each activity.· Cost analysis enables comparison of funds allotted and the actual amount of

funds used for completion of each activity.· Multiple schedules are contingency plans used to tackle crisis situations when

the master schedule cannot be followed.· Progress reports communicate actual project progress as compared to planned

progress, and identify any variations in a project schedule or resources.· Key events signify project status to customers and are used as control points

for project managers.· Deadlines and activity logic account for the earliest and latest possible start

dates for all project activities, and for activity relationships.

Quality-related activities

Quality management should be a priority throughout a project. As a project manager, it is essentialthat you carry out and/or verify the completion of the following quality-related activities:

· Making sure product design standards are compatible with customerexpectations

· Listing the materials needed to manufacture a product· Maintaining the project team’s focus on quality standards· Checking for over-design that increases production cost· Checking for under-design that cuts corners to keep a project on schedule· Clearly detailing a product’s design specifications

Quality planning techniques

Project managers can use different techniques to verify whether or not specific production processesor materials conform to a project’s quality standards. Some techniques used during quality planninginclude:

· Benefit/cost analysis. This compares benefits with cost to make sure that aproject meets quality requirements without exceeding the project’s budget.

· Benchmarking. Helps compare planned project activities to past project



activities. This technique allows the project manager to determine theadjustments that must be made to the project before work begins.

· Flowcharting. Uses flowcharts, such as cause and effect diagrams, to illustraterelationships among parts of a project.

· Design of experiments. Distinguishes the parts of a project that maximallyimpact a project’s final product.

Quality policy

A quality policy is a company’s statement that describes the procedures andmethodologies that it will follow to develop quality products and the corrective actionsit will take if products are defective. Most often, the senior management defines aquality policy to be implemented by project managers and team members. If acompany does not have a formal quality policy, then project managers and teammembers must draft one before starting a new project. It is also important that aproject’s stakeholders are familiar with the terms of the quality policy before a projectbegins.

Do it! A-2: Planning for qualityExercises

1 Which of the following is a quality planning technique used to verify ifproduction processes meet a project’s quality standards?

A Decomposition

B Resource loading

C Design of experiments

D Procurement verification

2 In your opinion, why is it important for project stakeholders to know the termsof quality policy before a project begins?

Topic B: Quality assuranceExplanation Quality assurance refers to project activities that are planned and executed to ensure

quality products and services. The goal of quality assurance is improved quality of aproject’s processes and end products. Quality assurance also aims for continuousquality improvement.

Several tools used in quality planning can also be used in quality assurance. Forexample, design of experiments can help ensure and improve product quality.Benchmarking can be used to generate ideas for improving quality by comparingspecific project practices or product characteristics to those of earlier projects orproducts within or external to the organization. However, quality audits are a maintechnique for establishing quality assurance.

Quality auditsProject quality audits are evaluations of a project’s quality management system. Onepurpose of project quality audits is to identify areas of improvement. It is important toconduct project quality audits because they highlight incidents of deviation from aproject’s quality objectives.

Project quality audits can be planned or spontaneous, announced or unannounced, and should beconducted by an independent person or group.

Project audits are conducted before, during, and after a project. The scope of an audit depends on the



time at which it is performed. For example:· Audits conducted before a project begins focus on the technical aspects of a project, such as

product design. Auditing a product’s design before production begins can be an important firststep toward quality improvement.

· Audits conducted during a project might focus on the progress of the project according to theschedule and budget provisions. If a project runs behind schedule, an audit can help determinethe causes.

· Audits conducted after project completion might focus on whether a product meets legalrequirements or meets the actual expenses as compared to the budgeted expenses.

Conducting a credible audit

For a quality audit to be credible, it is important that the person or group conducting the audit isindependent from the organization whose project is the focus of the audit. Auditors should never beinvolved in conflicts that occur within a project’s parent organization since involvement in suchconflicts could jeopardize the credibility of the audit.

A quality audit must be conducted by the person or group qualified to analyze project data.Qualifications vary depending on the project and the level of detail necessary for the audit.

In addition, the person or group conducting the audit must be provided free access to all project dataand members of a project team. Without access to the proper information and personnel, the auditcannot be conducted effectively.

Do it! B-1: Conducting an auditExercises

1 The goal of quality assurance is improved quality of a project’s processes andimproved quality of end products. True or false?

2 To conduct an effective audit, the auditor should:

A Be part of the organization whose project is the focus of the audit

B Be qualified to analyze project data

C Not be involved in conflicts occurring within a project’s parentorganization

D Be provided free access to all project data

Responsibilities of the project auditorExplanation Whether an audit is conducted by a person or an audit team, there are certain responsibilities that

must be acknowledged throughout the audit. These responsibilities include:· Conducting objective analysis of project data, which includes avoiding the

biases of interested parties and maintaining political and technicalindependence.

· Admitting limitations of technical knowledge, if any, that might affect theresults of the audit.

· Ensuring honest representation of audit results.

Project managers and team members must be aware of an auditor’s responsibilities so that they canavoid interfering with the auditor’s work. In addition, project managers and team members shouldleave auditors out of disputes, should not ask auditors to reveal confidential information, and shouldallow auditors access to all information pertinent to the audit.

Components of a project audit report



Project quality audit reports are useful tools for project managers. Audit reports containinformation, such as a project’s status at the time of the audit and the status ofactivities that most influence a project’s success.

Audit reports often analyze the level of risk, such as likelihood of a project’s failure. Determining thelevel of risk gives project managers and stakeholders the opportunity to consider ways to minimizethe risk.

In addition, audit reports should detail the assumptions made and restrictions faced during the audit.If an auditor made a faulty assumption during an audit, that assumption can impact the accuracy andvalidity of the audit report.

Do it! B-2: Assuring qualityExercises

1 It is the responsibility of a project quality auditor to conduct a subjectiveanalysis of project data to determine whether a project will be a success orfailure. True or false? Give reasons.

2 As a project manager for an IT project at Company A, you hired an auditorfrom Bedford & Brown to conduct an audit for Company A’s technicalsupport team.

Which information should your audit report include?

If the auditor makes any assumptions and faces any restrictions during anaudit, should that be included in the audit report?

Topic C: Quality controlExplanation Quality control measures are used throughout a project’s life cycle to make sure work

is completed properly and the project results match the expectations outlined in theproject’s quality management plan. During quality control, both the processes used tocomplete the project are examined to make sure they meet quality standards.

Quality control ensures that a finished product meets specific quality norms and that unacceptableproduct characteristics are corrected.

As with quality assurance, one of the main goals of quality control is to improve quality. The mainoutput of quality control includes acceptance decisions, rework, and process adjustments.

· Acceptance decisions determine if the products or services developed as part ofthe project will be accepted or rejected. If project stakeholders reject some ofthe products or services developed as part of the project, the team must rework.

· Rework includes the actions performed to rectify problems with rejected itemsso that they comply with the product requirements, specifications, orstakeholder expectations. Rework can be expensive; therefore, the projectmanager must ensure effective quality planning and assurance to avoid orminimize rework.



· Process adjustments correct or prevent further quality problems based onquality control measurements.

Statistical quality controlStatistical quality control evaluates the extent of product variation and identifies the changes, if any,that must be made to production processes to decrease product variation. Incidents of productvariation are represented on a graph by data points, and a normal distribution curve indicates whetheror not the variations are of an acceptable degree of quality standards.

Basic statistical terms

Quality monitoring involves the use of statistics. Therefore, it is important to know the followingbasic statistical terms:

· Population. Refers to the total number of product units developed during aproject.

· Sample size. Refers to the number of product units derived from a populationfor evaluation during a project’s quality monitoring process. This number variesdepending on the product, the time of the inspection, and the company’s needs.

· Mean. Refers to the sum of the sample divided by the number of units in thesample. For example, in the sample {2, 3, 4, 3}, the mean is (2 + 3 + 4 + 3)/4,which is 3.

· Median. When an odd-numbered set of data is arranged sequentially, themiddle number in the set is the median. For example, in the set {2, 4, 7}, themedian is 4. When an even-numbered set of data is arranged sequentially, themedian is the average of the middle two numbers. For example, in the set {3, 4,6, 8}, the median is. (4 + 6)/2, which is 5.

· Mode. Represents a number that occurs most frequently in a sample of data.For example, in the set {1, 4, 6, 1, 8, 1}, the mode is 1.

Do it! C-1: Using statistical termsExercises

1 The term “mean” refers to the number of defects that occur most frequently ina sample of product units. True or false?

2 In a data sample, the number that occurs most frequently represents:

A Mean

B Median

C Mode

D Sample size

Tools and techniques for quality controlExplanation There are several tools and techniques that you can use for quality control. These include:

· Pareto analysis· Statistical sampling· Quality control charts

Pareto analysis

Pareto analysis involves identifying the vital contributors that account for the maximum quality



problems. It is, sometimes, referred to as the 80–20 rule, which means that 80 percent of problemsare often due to 20 percent of the causes. Theoretically, if project managers focus on the 20% ofprocesses identified using Pareto analysis, they will be able to solve 80% of the project’s problems.

Pareto analysis uses histograms to list product defects based on their type and frequency ofoccurrence. Project managers can use Pareto analysis to rank defects according to severity, and thenfocus on correcting the most critical defects.

In addition, Pareto analysis diagrams are used to determine whether corrective action has actuallyrectified a problem. It also evaluates the differences between project activities or methods.

A Pareto diagram is an effective tool for analyzing user complaints and helping project managersprioritize the complaints to be addressed. For example, suppose users issued several complaints abouta new Executive Information System (EIS) launched recently. You can use the Pareto diagram toanalyze and address these complaints. Exhibit 6-1 shows the Pareto diagram of user complaints bycategory that can apply to an EIS project. The bars represent the number of complaints for eachcategory, and the line shows the cumulative percent of the complaints. Exhibit 6-1 shows that themost frequent user complaint is log-in problems, followed by the system locking up, the system beingtoo slow, the system being hard to use, and the reports being inaccurate. The first type of complaintaccounts for 55 percent of total complaints, and the first and second types of complaints togetheraccount for a cumulative percentage of almost 80 percent, which means that these two types ofcomplaints alone account for 80 percent of all complaints. Therefore, the company should focus onmaking it easier for users to log in to the system to improve quality because the majority of users facethis problem. The company should also determine why systems lock up. Because the problem ofinaccurate reports was rare, the project manager should determine the user who faced this problembefore spending effort on addressing this potentially critical problem with the system. The projectmanager should also find out if complaints about the system being too slow were because users wereunable to log on or the systems were locking.

Exhibit 6-1: A sample Pareto diagram

Statistical sampling and standard deviation

Statistical sampling is a key concept in project quality management. Members of a project team whofocus on quality control must clearly understand statistics, but other team members need tounderstand only the basic concepts. These concepts include statistical sampling, certainty factor,standard deviation, and variability. Standard deviation and variability are fundamental concepts forunderstanding quality control charts.

Statistical sampling involves choosing part of a population for inspection. For example, suppose acompany wants to develop an electronic data interchange (EDI) system to handle data on invoicesfrom all of its suppliers. Assume that in the past year, the total number of invoices received from 200suppliers was 50,000. It will be time-consuming and expensive to review each invoice to determinedata requirements for the new system. Even if all invoice forms were reviewed, the data might beentered differently on every form, posing problems related to interpretation. To manage and processdata from a large number of sources, statisticians developed techniques to help determine anappropriate sample size. If system developers used statistical techniques, they might find that bystudying only 100 invoices, a sample of the type of data required to design the system will beavailable.

The size of the sample depends on the extent of sample representation you require. A formula fordetermining sample size is:

Sample size = .25 x (certainty factor/acceptable error)2

The certainty factor denotes how certain you want to be that the data sampled will not includevariations that do not naturally exist in the population. You calculate the certainty factor from tablesin statistics books.

The following table shows commonly used certainty factors.

Desired certainty Certainty factor95% 1.960



90% 1.645

80% 1.281

For example, the developers of the EDI system described earlier accept a 95 percent certainty that asample of invoices contain no variation, unless it was part of the population of total invoices. Theythen calculate the sample size as:

Sample size = 0.25 x (1.960/.05) 2 = 384

If the developers require 90 percent certainty, they calculate the sample size as:Sample size = 0.25 x (1.645/.10)2 = 68

If the developers want 80 percent certainty, they calculate the sample size as:Sample size = 0.25 x (1.281/.20)2 = 10

Another key concept in statistics related to quality control is standard deviation. Standard deviationmeasures the variation in the distribution of data. A small standard deviation means that data clusterclosely around the center of a distribution, and there is little variation in the data. A large standarddeviation means that data are spread out around the center of the distribution, and there is relativelyhigher variation. Statisticians use the Greek symbol s (sigma) to represent standard deviation.

Exhibit 6-2 provides an example of a normal distribution—a bell-shaped curve that is symmetricalabout the mean or average value of the population. In any normal distribution, 68.3 percent of thepopulation is within one standard deviation (1s) of the mean, 95.5 percent is within two standarddeviations (2s), and 99.7 percent is within three standard deviations (3s) of the mean. Note that beingwithin 3s of the mean in this example indicates plus or minus 3s.

Exhibit 6-2: Normal distribution and standard deviation

Standard deviation is important in quality control because it is a key factor in determining theacceptable number of defective units. Some companies, such as Motorola, GE, and Polaroid, aresetting high quality standards by using Six Sigma (6s) as a quality control standard instead of three orfour sigma. Six Sigma is considered to be one of the best-known contributions to qualityimprovement.

The following table further illustrates the relationship between sigma, the percentage of thepopulation within the sigma range, and the number of defective units per billion. The next sectiondescribes how sigma is used on quality control charts.

Specificationrange (in +/- sigmas)

Percent ofpopulationwithin range

Defective unitsper billion

1 68.27 317,300,000

2 95.45 45,400,000

3 99.73 2,700,000

4 99.9937 63,000

5 99.999943 57

6 99.9999998 2

Quality control charts, six sigma, and the seven run rule

A control chart is a graphic display of data that illustrates the results of a process over a period of



time. The main use of control charts is to prevent defects, rather than to detect or reject defects.Quality control charts allow you to determine whether a process is in control or out of control. Whena process is in control, any variations in the results of the process are created by random events.Processes that are in control do not need to be adjusted. When a process is out of control, variationsin the results of the process are caused by nonrandom events. You need to identify the causes ofnonrandom events and adjust the process to correct or eliminate such events. Control charts are oftenused to monitor manufactured products, but they can also be used to monitor the volume andfrequency of change requests, errors in documents, cost and schedule variances, and other itemsrelated to project quality management.

Exhibit 6-3 illustrates an example of a control chart for a process that manufactures 12-inch rulers.Assume that these are wooden rulers created by machines on an assembly line. Each point on thechart represents a length measurement for a ruler that leaves the assembly line. The scale on thevertical axis extends from 11.90 to 12.10. These numbers represent the lower and upper specificationlimit for the ruler. This means that the customer has specified that all rulers must be 11.9 to 12.1inches long or 12.0 inches, plus or minus 0.1 inch. Thus, the lower and upper control limits on thequality control chart are 11.91 and 12.09 inches, respectively. This means the manufacturing processis designed to produce rulers that are 11.91 to 12.09 inches long.

Exhibit 6-3: Sample quality control chart

Note the dotted lines on the chart at 12.03 inches, 12.06 inches, and 12.09 inches. These dotted linesrepresent the points at one, two, and three standard deviations above the mean. The dotted lines at11.97 inches, 11.94 inches, and 11.91 represent the points at one, two, and three standard deviationsbelow the mean. Based on the definition of ±3s described earlier, 99.73 percent of the manufacturedrulers should be 11.91 to 12.09 inches long, if the manufacturing process is operating in control.

Exhibit 6-4 illustrates the concept of moving from a quality control process operating at ±3s to aprocess operating at ±6s. Important goals of quality are to reduce defects and process variability. Byreducing process variability, the standard deviation of the process distribution decreases. As youcontinue to reduce process variability, it is possible for the product tolerance or control limits thatformerly included only three sigmas to eventually include six sigmas.1

Exhibit 6-4: Reducing defects with six sigma

Looking for patterns in process data and analyzing them is an important part of quality control. Youcan use quality control charts and the seven run rule to look for patterns in data. The seven run rulestates that if seven data points in a row lie below the mean, above the mean, or are all increasing ordecreasing, then the process needs to be examined for non-random problems. In Exhibit 6-3, datapoints that violate the seven run rule are starred. In the ruler manufacturing process, these data pointsmight indicate that a calibration device needs to be adjusted. For example, the machine that cuts thewood for the rulers might need to be adjusted or the blades on the machine might need to bereplaced.

Testing

Many IT professionals assume testing is a stage toward the end of IT product development. Insteadof putting serious effort into proper planning, analysis, and design of IT projects, some companiesrely heavily on testing their products just before dispatch to ensure quality. Contrary to popularbelief, testing must be performed during every phase of the product development life cycle and notjust before product delivery.

Exhibit 6-5 shows one way of portraying the software development project life cycle. This exampleincludes 17 main phases involved in a software development project and shows their inter-relationships. For example, every project should start by initiation, then by performing a feasibilitystudy, and then by planning for the project. The exhibit shows that the work involved in detailingrequirements and the architecture for the system can be performed simultaneously. The oval-shapedphases represent areas where you should test the product to help ensure quality on softwaredevelopment projects.2



Exhibit 6-5: Testing tasks in the software development life cycle

Several phases shown in Exhibit 6-5 include specific work related to testing. A unit test is performedto test each individual component (often a program) to ensure it is defect-free. Unit tests areperformed before moving on to the integration test. Integration testing occurs between unit andsystem testing to test functionally-grouped components. It ensures that each subset of the systemworks together. System testing tests the entire system as an entity. It focuses on the big picture toensure that the entire system works properly. User acceptance testing is an independent testperformed by the end user prior to accepting the delivered system. It focuses on the business fit ofthe system to the organization, rather than on technical issues.

Do it! C-2: Discussing quality control techniquesExercises

1 Seven run rule applies to which quality control tool?

A Checklist

B Pareto analysis

C Control charts

D Inspection

2 A project’s process is “out of control” when the data points on a control chartare:

A In a periodic pattern

B Not random around the mean

C Random around the mean

D Hugging the control limit

3 Do you agree with the following statement?

“Quality cannot be infused in a project or a product by inspection.”

Improving IT project qualityExplanation In addition to some of the suggestions provided for using good quality planning,

quality assurance, and quality control, several other important factors help improve thequality of IT projects. Understanding the cost of quality, providing a good workplaceto enhance quality, and working toward improving the organization’s overall maturitylevel in software development and project management can assist in improving quality.

The cost of quality

The cost of quality is the total of the cost of conformance and the cost of nonconformance.Conformance means delivering products that meet requirements and fitness standards. Examples ofcost of conformance include the costs associated with developing a quality plan, analyzing andmanaging product requirements, and testing. Nonconformance means accepting responsibility forfailures or for not meeting quality expectations.

The following table, generated by Contingency Planning Research in 1995, summarizes the netbottom-line costs per hour of downtime caused by software defects for different businesses. BothAmerican Airlines and United Airlines estimated that reservation system downtime costs them over$20,000 per minute in lost income. This table—which highlights the costs per hour of downtimecaused by software defects—illustrates more examples of the cost of nonconformance.



Business Cost per hour of

downtimeAutomated teller machines (medium-sized bank) $14,500

Package shipping service $28,250

Telephone ticket sales $69,000

Catalog sales center $90,000

Airline reservation center (small airline) $89,500

The five major cost categories related to quality include:1 Prevention cost. This is the cost of planning and executing a project so that it is error-free or

within an acceptable error range. Preventive actions such as training, detailed studies relatedto quality, and quality surveys of suppliers and subcontractors fall under this category. Thecost of 100 dollars spent for refining user requirements can save millions by detecting defectsbefore implementing a large system. The Year 2000 issue, commonly called Y2K, provides agood example of these costs. If companies had decided during the 1960s, 1970s, and 1980sthat all dates would need four characters to represent the year instead of two characters, theycould have saved billions of dollars.

2 Appraisal cost. This is the cost of evaluating processes and their output to ensure that aproject is error-free or within an acceptable error range. Activities such as inspection andtesting of products, maintenance of inspection and test equipment, and processing andreporting inspection data contribute to the appraisal costs of quality.

3 Internal failure cost. This is the cost incurred to correct an identified defect before thecustomer receives the product. Items such as scrap and rework, charges related to latepayment of bills, inventory costs incurred as a result of defects, costs of engineering changesrelated to correcting a design error, premature failure of products, and correctingdocumentation contribute to the internal failure cost.

4 External failure cost. This is the cost that relates to all errors not detected and correctedbefore delivery to the customer. Examples of external failure cost include warranty cost, fieldservice personnel training cost, product liability suits, complaint handling, and future businesslosses.

5 Measurement and test equipment costs. This is the capital cost of equipment used toperform prevention and appraisal activities.

Senior management is primarily responsible for the high cost of nonconformance in IT. Seniormanagers often rush their organizations to develop new systems and do not give project teams enoughtime or resources to do a project right the first time. To correct these quality problems, seniormanagement must create a culture that embraces quality.

Organizational influences, workplace factors, and quality

A study done by Tom DeMarco and Timothy Lister, which was published in Peopleware: ProductiveProjects and Teams, produced interesting results related to organizations and relative productivity.Starting in 1984, DeMarco and Lister conducted “Coding War Games” over several years. Over theyears, more than 600 software developers from 92 organizations have participated in these games.The games are designed to examine programming quality and productivity over a wide range oforganizations, technical environments, and programming languages. The study demonstrated thatorganizational issues influenced productivity in a larger way than the technical environment orprogramming languages.

DeMarco and Lister found that productivity varied by a factor of about 1 to 10 across participants.This means that one team might have completed a coding project in one day while another team took10 days to complete the same project. In contrast, productivity varied by an average of only 21percent between pairs of software developers from the same organization. If one team from a specificorganization finished the coding project in one day, the longest time that another team from the same



organization took to finish the project was 1.21 days.

DeMarco and Lister also found no correlation between productivity and programming language, yearsof experience, or salary. Moreover, the study showed that providing a dedicated workspace and aquiet work environment were key factors in improving productivity. The results of the study suggestthat senior managers must focus on work-place factors to improve productivity and quality.3

Maturity models

Another approach to improving quality in software development projects and projectmanagement, in general, is the use of maturity models—frameworks for helpingorganizations improve their processes and systems. Three popular maturity modelsinclude the Software Quality Function Deployment (SQFD) model, the CapabilityMaturity Model (CMM), and the Project Management Maturity Model.

The SQFD model is an adaptation of the quality function deployment model suggestedin 1986 as an implementation vehicle for total quality management. SQFD focuses ondefining user requirements and planning software projects. The result of SQFD is a setof measurable technical product specifications and their priorities. Defining clearrequirements can lead to fewer design changes, increased productivity, and, ultimately,software products that meet stakeholder requirements.

Another popular maturity model, the CMM, is in continuous development at the SoftwareEngineering Institute at Carnegie Mellon University. The Software Engineering Institute (SEI) is afederally funded research and development center established in 1984 by the U.S. Department ofDefense with a broad mandate to address the transition of software engineering technology. TheCMM is a five-level model that lays out a generic path for process improvement for softwaredevelopment in organizations.

The five levels of the CMM model are:1 Initial. The software development processes for organizations at this maturity

level are ad hoc and occasionally even chaotic. Few processes are defined, andsuccess often depends on individual effort.

2 Repeatable. Organizations at this maturity level have established basic projectmanagement processes to track cost, schedule, and functionality for softwareprojects. Process discipline is defined to repeat earlier successes on similarprojects.

3 Defined. At this level, software processes for both management and softwareengineering activities are documented, standardized, and integrated into astandard software process for the organization. All projects use an approved,tailored version of the standard process in the organization.

4 Managed. At this maturity level, organizations collect detailed measures of thesoftware process and product quality. Both software processes and products arequantitatively interpreted and controlled.

5 Optimizing. Operating at the highest level of the maturity model, organizationscan enable continuous process improvement by using quantitative feedbackfrom the processes and from piloting innovative ideas and technologies.4

In the late 1990s, several organizations began developing project management maturity models basedon the Capability Maturity Model. Just as organizations realized the need to improve their softwaredevelopment processes and systems, they also realized the need to enhance their project managementprocesses and systems.

The third maturity model is the Project Management Maturity Model. The PMI StandardsDevelopment Program made substantial progress on an Organizational Project Management MaturityModel (OPM3) Standard in 1998. PMI has worked with several companies to prepare guidelines for amaturity model for project management. The OPM3 includes a method for assessing organizations’project management maturity levels and a step-by-step method for increasing and maintaining anorganization’s ability to deliver projects as committed. One sample project management maturitymodel developed by Micro-Frame Technologies, Inc. and Project Management Technologies, Inc. in1997 has the following basic levels.



· Ad-Hoc. The project management process is described as disorganized and, occasionally,even chaotic. The organization does not follow defined systems and processes, and projectsuccess depends on individual effort. There are chronic cost and schedule problems.

· Abbreviated. Some project management processes and systems are defined to track cost,schedule, and scope. Project success is largely unpredictable and cost and schedule problemsare common.

· Organized. Standardized, documented project management processes and systems areintegrated into the rest of the organization. Project success is more predictable, and cost andschedule performance is improved.

· Managed. Management collects and uses detailed measures of effectiveness of projectmanagement. Project success is uniform, and cost and schedule performance conforms toplans.

· Adaptive. Feedback from the project management process and from piloting innovative ideasand technologies enables continuous improvement. Project success is the norm, and cost andschedule performance shows continuous improvement.5

Many organizations are assessing where they are in terms of project management maturity, just asthey did for software development maturity. Organizations are recognizing that they must make acommitment to the discipline of project management to improve project quality.

Do it! C-3: Improving IT project qualityQuestions and answers

1 How can you improve understanding of customer requirements, the cost ofquality, and improved testing?

2 Suggest some ways for improving IT project quality.

Unit summary: Quality managementTopic A In this topic, you learned about quality management and its main processes. Then, you learned that

quality planning includes identifying and meeting the quality standards relevant to a project. Next,you learned about important scope aspects of IT projects that affect quality. Finally, you learnedabout quality plans and the quality planning techniques.

Topic B In this topic, you learned that quality assurance refers to project activities that are planned andexecuted to ensure quality products and services. Then, you learned that quality audits are one ofthe main techniques for establishing quality assurance. Next, you learned about the responsibilities ofa project auditor. Finally, you learned about the audit report and its components.

Topic C In this topic, you learned that quality control measures are used throughout a project’s life cycle tomake sure work is completed properly and that the actual project results match the expectations.Then, you learned the basic statistical terms used in quality monitoring. You also learned about thetools and techniques for quality control, including Pareto charts, statistical sampling, standarddeviation, control charts, six sigma, and testing. Next, you learned about the methods to improveIT project quality. You also learned about the three popular maturity models: the Software QualityFunction Deployment (SQFD) model, the Capability Maturity Model (CMM), and the Project



Management Maturity Model.

Independent practice activity 1 Recall projects in which you have participated. What quality management techniques were used?

Were they effective? What changes could be made to improve the quality of your organization’sIT projects?

Answers might vary.

2 To illustrate a normal distribution, shake and roll a pair of dice 30 times and plot the results on agraph or draw a grid. It is more likely for someone to roll a six, seven, or eight than a two ortwelve, so these numbers should come up more often. On the graph, label the x-axis with thenumbers 2 through 12. Label the y-axis with the numbers 1 through 8. Fill in the appropriate gridfor each roll of the dice. Do your results resemble a normal distribution? Why or why not?

Answers might vary.

3 Which quality control tool uses a graphic display of data that illustrates the results of a processover a period of time to prevent defects, rather than to detect or reject defects?

A Trend analysis

B Pareto analysis

C Control chart

D Flowchart

Endnotes

# Reference

1 Ireland, Lewis R. Quality Management for Projects and Programs. PMI, 1991, cover page illustrationand comments.

2 Hollstadt & Associates, Inc. Software Development Project Life Cycle Testing Methodology User’sManual. Burnsville: MN, August 1998, 13.

3 DeMarco, Tom and Timothy Lister. Peopleware: Productive Projects and Teams. New York: DorsetHouse, 1987.

4 Paulk, Mark C., Bill Curtis, Mary Beth Chrissis, and Charles V. Weber. Capability Maturity Modelfor Software, Version 1.1, Technical Report, CMU/SEI-93-TR-024, ESC-TR-93-177 (February 1993).

5 Enterprise Planning Associates. Project Management Maturity Model, Interactive Quick Look (1998).

U n i t 7Human resource management





A Define the elements of organizational planning.

B Discuss staff acquisition and explain how to negotiatesuccessfully.

C Discuss the development of successful teams and how tomotivate them.

D Use software to assist in human resource management.

Topic A: Organizational fundamentalsExplanation Human resource management involves using project resources effectively. Human resource

management includes managing all project stakeholders: sponsors, customers, project team members,support staff, vendors, and supporting staff. The major processes involved in human resourcemanagement include:

· Organizational planning, which involves identifying, assigning, anddocumenting project roles, responsibilities, and reporting relationships. Keyoutput of this process includes roles and responsibility assignments, oftenshown in a matrix form, and an organizational chart for the project.

· Staff acquisition, which involves arranging for the required personnel to workon the project. Finding personnel with the required skill and expertise is one ofthe crucial challenges of information technology (IT) projects.

· Team development, which involves building individual and group skills toenhance performance. Team development and skill enhancement are alsochallenges for many IT projects.

The project managers can follow the steps given below to create a project team:1 Investigate the parent company’s internal culture, its inclination toward taking risks, and how

much money it is budgeting for the project.2 Ascertain whether or not the parent company has already established the project’s completion

date. The less time allowed for project execution, the more authority the project managerneeds to make project-related decisions and shift resources so the project can be completed ontime.

3 Clearly define project roles and responsibilities.4 Outline the channels of communication that will be used throughout the project.5 Determine the type of project organizational structure that will work best for the parent

company, the team members, and for project execution.6 Acquire personnel for the project team.7 Develop a team culture that fits within the bounds of the parent company’s culture.

A project manager must make the best decisions possible at any time, based on time and resourceconstraints. Situations change and factors are unpredictable, so what might have been a good decisionten minutes ago can now be less than desirable. Therefore, the project manager and team must beflexible and work together to handle changes in a project’s course.

Organizational planningOrganizational planning for a project involves identifying, documenting, and assigningproject roles, responsibilities, and reporting relationships. This process generates anorganizational chart for the project team, as well as roles and responsibilityassignments, which are often shown in a matrix form called a responsibility assignmentmatrix (RAM). It also generates a staffing management plan.

Before creating an organizational chart for a project, senior managers and the project manager mustidentify the resources they need to ensure the project’s success. If the project requires Javaprogrammers or a top-notch project manager and experienced team leaders, then this must be



included in organizational planning.

Do it! A-1: Discussing organizational planningQuestions and answers

1 What are the main processes involved in human resource management?

2 What are the components of organizational planning?

Elements of organizational planningExplanation Organizational planning includes the following:

· Clearly defining roles and responsibilities· Developing a staff management plan· Creating an organizational chart· Writing detailed job descriptions· Clearly defining roles and responsibilities

After identifying the skills and resources for a project, the project manager should work with seniormanagers and team members to create an organizational chart. Exhibit 7-1 provides a sampleorganizational chart for a large IT project. Note that the project personnel include a deputy projectmanager, subproject managers, and team members. Deputy project managers fill in for projectmanagers in their absence and assist them when required; their role is similar to that of a vicepresident. Subproject managers manage subprojects that constitute a large project. This structure istypical for large projects. With many resources working on a project, clearly defining and allocatingproject work is essential. Small IT projects usually do not require deputy project managers orsubproject managers, and the project managers work directly with team leaders and other teammembers.

Exhibit 7-1: Sample organizational chart for a large IT project

Organizational planning provides a framework for defining and assigning work. This process consistsof four steps:

1 Finalizing the project requirements.2 Defining how to accomplish the task.3 Breaking down the work into manageable elements.4 Assigning work responsibilities.

Work definition and assignment process

The work definition and assignment process is carried out during the proposal and startup phases of aproject and is shown in Exhibit 7-2. The process is iterative, which means that it often takes morethan one pass through the process to refine it. A Request for Proposal (RFP) or draft contract oftenprovides the basis for defining and finalizing work requirements, which are then documented in afinal contract. If a project does not use an RFP, then the internal project charter and scope statement



can provide the basis for defining and finalizing work requirements. The project team leaders thendecide a technical approach for work. They also decide if work should be broken down using aproduct-oriented approach or a phased approach. In addition, they decide if part of the work can beoutsourced or subcontracted.

After the project team decides a technical approach, they develop a work breakdown structure (WBS)to establish manageable elements of work. They then develop activity definitions to further define thework involved in each activity on the WBS. The last step in the process is assigning the work.

Exhibit 7-2: Work definition and assignment process

After the project manager and project team split the work into manageable elements, the projectmanager assigns the work to organizational units of the project. The project manager often basesthese work assignments on where the work fits in the organization and uses an organizationalbreakdown structure to conceptualize the process. An organizational breakdown structure (OBS) is aspecific type of organizational chart that shows the organizational units and their corresponding workitems. The OBS can be based on a general organizational chart and then broken down into detailbased on specific units within departments in the company or units in any subcontracted companies.

After developing an OBS, the project manager can create a responsibility assignment matrix (RAM).A responsibility assignment matrix (RAM) maps the work of the project as described in the WBS tothe human resources responsible for performing the work, as described in the OBS. Exhibit 7-3shows an example of a RAM. The RAM allocates work to responsible and performing organizations,teams, or individuals, depending on the required level of detail. For small projects, it is best to assignindividual resources to WBS activities. For large projects, it is effective to assign the work toorganizational units or teams.

Exhibit 7-3: Sample responsibility assignment matrix

In addition to using the RAM to assign detailed work activities, you can use it to define general rolesand responsibilities for projects. This type of RAM can include the project stakeholders. Exhibit 7-4provides a RAM that shows whether stakeholders are accountable or participants in part of a project,and whether they are required to provide input, review, or sign off on parts of a project. This simpletool can be an effective way for the project manager to communicate the roles and expectations ofimportant stakeholders on projects.

Exhibit 7-4: RAM showing stakeholder roles

Another output of organizational planning is a staffing management plan. This plan describes whenand how resources will be allocated to the project team. It can be a formal or an informal plan; thelevel of detail will vary based on the type of project. For example, if an IT project is estimated toneed an average of 100 team members for over a year, the staffing management plan describes thetypes of resources needed to work on the project, such as Java programmers, business analysts, andtechnical writers, and the number of each type of resource. The staffing management plan oftenincludes a resource histogram—a column chart that shows the number of resources assigned to aproject over time.

Exhibit 7-5 provides an example of a histogram used for a large, one-year IT project. The columnsrepresent the number of people needed in each area—Java programmers, business analysts, technicalwriters, managers, administrative staff, database analysts, and testing specialists. After determiningthe project staffing needs, the next few steps in project human resource management are to acquirethe necessary staff and develop the project team.

Exhibit 7-5: Sample resource histogram for a large IT project

Do it! A-2: Identifying the elements of organizational planningExercises

1 Which of the following is an element of organizational planning?



A Adoption of quality control techniques

B Rough ideas for a staff management plan

C Clearly defining roles and responsibilities

D Greater independence from contractors

2 What is RAM?

3 A staffing management plan often includes a resource histogram. Describe thistool.

Topic B: Staff acquisitionExplanation Staff acquisition, especially of qualified IT professionals, is critical and so is assigning the

appropriate type and number of resources to work on projects at the appropriate time. Resourceloading and leveling are human resource management techniques that address these concerns. Onceacquired, it’s paramount that the skilled and motivated professionals work as part of a team for theproject to be successful. Therefore, after hiring professionals for a project, team development is thenext important activity.

After developing a staffing management plan, project managers must work with their colleagues inother departments to assign human resources to their projects. Project managers with strongpersuasion and negotiation skills often succeed in arranging for resources from other departments towork on their projects. However, the organization must ensure that skilled resources that best fit inthe profile required for a project are assigned to that project. The main outputs of the staff acquisitionprocess are project staff assignments and a project team directory.

Organizations using good staffing plans are successful in their staff acquisition procedures. Theseplans describe the number and type of human resources currently working with the organization andto be acquired by the organization based on the current and upcoming projects. An importantcomponent of staffing plans is maintaining a complete and accurate inventory of employees’ skills. Ifthere is a mismatch between the skills of the existing employees and the organization’s needs, thenthe project manager must work with senior managers, human resource managers, and others in theorganization to address staffing and training needs.

It is also important to define procedures for hiring subcontractors and recruiting newemployees. The Personnel department is responsible for hiring; however, projectmanagers must work with human resource managers to ensure resources with therequired skills and expertise are hired. It is also important to address retention issues,especially for IT professionals.

One innovative approach to hiring and retaining IT staff is to offer existing employees incentives forhelping recruit and retain personnel. For example, several consulting companies pay their employeesone dollar for every hour of work by new members of staff that the employees helped hire. Thisprovides an incentive for current employees to help recruit skilled resources and keep them workingwith the organization. Another approach adopted by several companies is to provide benefits basedon the personal needs of its employees. For example, some employees might want to work only fourdays a week or might want to work from home a couple of days a week. With increasing competitionfor hiring good IT professionals, organizations are becoming innovative and proactive in evolvingstrategies to retain their employees.

Resource loading and levelingScheduling processes often do not address the issues of resource utilization and availability.Schedules tend to focus exclusively on time rather than on both time and resources, including human



resources. An important measure of a project manager’s success is how well he or she balances thetradeoffs among performance, time, and cost. During crises, it is occasionally possible to addadditional resources—such as additional team members—without adding to the project’s cost. Onmost occasions, however, resolving performance, time, and cost tradeoffs entails additional costs tothe organization.

The project manager’s goal must be to achieve success without increasing the costs or time requiredto complete the project. The key to accomplish this goal is to manage the human resources assignedto the project effectively.

After human resources are assigned to projects, project managers can use twotechniques to use project staff most effectively, resource loading and resource leveling.Resource loading refers to the number of resources the project requires during specifictime periods according to the existing schedule. This technique helps project managersunderstand the demands a project will make on the organization’s resources. Projectmanagers often use histograms to depict period-by-period variations in resourceloading. A histogram helps determine staffing needs or identify staffing problems. Aresource loading histogram can also show the period when work is over-allocated to aspecific team member or group. Over-allocation means more resources than areavailable are assigned to perform work at a given time.

Resource leveling is a technique for resolving resource conflicts by delaying tasks. It isa form of schedule development technique in which resource management concernsdrive scheduling decisions (start and finish dates). The main purpose of resourceleveling is to ensure uniform resource usage in a project. Project managers examine thenetwork diagram to identify areas of slack or float and those of resource conflicts.

Over-allocation is a type of resource conflict. If a resource is over-allocated or under-allocated, theproject manager can modify the schedule to change the workload of the resource. Resource leveling,therefore, aims to minimize period-by-period variations in resource loading by shifting tasks withintheir slack allowances.

Exhibit 7-6 illustrates a simple example of leveling resources. The network diagram at the top in thisexhibit shows that activities A, B, and C can start at the same time. Activity A requires two resourcesto complete it in two days; Activity B requires four resources to complete it in five days; andActivity C requires two resources to complete it in three days. The histogram on the lower left in thisexhibit shows the resource usage if all activities start on the first day. The histogram on the lowerright in Exhibit 7-6 shows the resource usage if Activity C is delayed by two days, which is its totalslack allowance. Notice that the lower right histogram is flat or leveled, which means that its pieces(activities) are arranged to take up the least space (saving days and numbers of workers). You mightrecognize this strategy from the computer game Tetris, in which you earn points for keeping thefalling shapes as level as possible. The player with the maximum points (and the maximum levelshape allocation) wins. Resources are also used best when they are leveled.

Exhibit 7-6: Resource leveling example

Resource leveling has several benefits. First, when resources are used regularly, they require lessmanagement. For example, it is easier to manage a part-time team member who works 20 hours aweek for 3 months than a team member who works 10 hours the first week, 40 hours the next, and 5hours the next.

Second, resource leveling enables project managers to use a just-in-time inventory type of policy forusing subcontractors or other expensive resources. For example, a project manager might want tolevel resources related to work performed by specific subcontractors, such as testing consultants. Thisleveling might allow the project to use four external consultants full time to test the deliverables forfour months, instead of using more time or more resources. The latter approach is more expensive.

Third, resource leveling results in smooth operations for project personnel and accountingdepartments. Increasing and decreasing labor levels and particular human resources often requireadditional work and causes confusion. For example, if a team member with expertise in a particulardomain works two days a week and another member works two different days, it will be impossibleto get the two team members to work together on the project. In addition, the accounting departmentmight need to handle subcontractors’ requests for a higher rate for billing less than 20 hours a week



or any other such condition. However, the accountants, along with project managers, will strive to getwork done at the lowest possible rates.

Finally, resource leveling improves morale. Human resources prefer stability in their jobs and mightfind it difficult to work during periods of uncertainty or lack of information about their projectassignments.

Project management software can automatically level resources. However, the project manager mustbe careful in using the results of the software. Automatic leveling often modifies the project’scompletion date. Resources might be reallocated to work at time periods that are inappropriate, givenother constraints. A wise project manager should ensure that leveling is appropriate by proficient useof the project management software.

Do it! B-1: Discussing resource loading and resource levelingQuestions and answers

1 What is the main problem in scheduling resources? How can this problem beresolved?

2 Differentiate between resource loading and resource leveling.

3 What are the benefits of resource leveling?

Successful negotiationExplanation Depending on the nature of the project and that of the project’s parent organization, negotiations can

play a major role in staffing for a project. For example, a project manager might negotiate with afunctional manager to assign specialized personnel from a particular department.

Negotiating for project personnel can be a difficult task. However, as a project manager, you canalleviate some of the stress by following these suggestions:

1 Develop a plan.2 Adjust your approach.3 Compromise.

Developing a plan

A critical element of successful negotiations is preparation. When preparing to negotiate for projectpersonnel, a project manager should follow these steps:

1 Determine the human resource skills necessary to complete each activity listed on the project’swork breakdown structure.

2 Write clear and concise job descriptions.



3 Set goals for staff acquisition.4 Assess the party with whom you’ll negotiate. This step involves referring to records from

previous negotiations, verifying the authority of the party with whom you’ll negotiate, anddiscerning their needs.

5 Set limits that coincide with the staff acquisition goals and identify the options available.When you know the decisions that might or might not be acceptable, you’ll know when toabandon an unproductive negotiation.

6 Create an agenda for the negotiation. This step involves prioritizing issues according to yourgoals. Prioritizing issues prevents you from wasting time debating unnecessary points andkeeping the negotiation focused on your goals for staff acquisition.

Never start a negotiation unless you are thoroughly prepared. If the other party is ready to negotiate,but you are not, establish a date when you’ll be ready to negotiate.

Adjusting your approach

While negotiating for project staff, tension might arise. If the negotiation gets intense, you mightwant to take a break to allow yourself and the other party to regroup and, perhaps, gain a differentperspective.

It is helpful to understand that an individual’s negotiation style is influenced by personality,experience, and attitudes. You might need to adjust your negotiating style to encourage a non-confrontational atmosphere during negotiations.

Compromising

Sometimes, the skilled personnel required for your project might not be available. In such situations,you need to work out the feasibility of training the existing team members and determine whether theproject can allow the time, resources, and capacity to do the same. It is important that you do notreject your staff acquisition goals but work on alternative measures.

Do it! B-2: Developing a negotiation planExercises

1 As a project manager, what can you do to alleviate stress when negotiating forpersonnel?

2 When developing a negotiation plan, which of the following should you dofirst?

A Set goals for staff acquisition.

B Create an agenda for the negotiations.

C Determine necessary skills for activity completion.

D Assess the party with whom you’ll negotiate.

3 Never start a negotiation unless you are thoroughly prepared. True or false?

Personnel problems that can arise during a projectExplanation Two personnel problems that can arise during a project are:

· Performance-based problems. A team member’s performance is influencedby factors such as the work environment, relationships with co-workers, andchanges to a project. It is important to understand that team members need to



adapt quickly to changes. During adaptation periods, a team member’sperformance might be adversely impacted before it stabilizes.

· Policy-based problems. A parent company’s policies influence team members’motivation levels and behavior. For example, the team members working at aproject office might have a better opportunity to earn bonuses based on theirperformance than team members who work in other project areas. Suchdiscrepancies can lead to jealousy and arguments among team members.

Do it! B-3: Resolving personnel problemsExercises

1 Which of the following can influence a project team member’s performance?

A Budget constraints

B Project scope

C Project changes

D Resource procurement

2 What are the two types of personnel problems?

Topic C: Team developmentExplanation Team development is an important factor contributing to the success of a team and that of the team’s

project. Many IT projects engage talented team members, but teamwork is important for successfullycompleting most projects. All team members assigned to a project must be able to work together toachieve the project goals. Team development is a vital part of human resource management. Teamdevelopment helps team members to work together effectively as a cohesive team to improve projectperformance and ensure project success with minimum interpersonal conflict. A project managershould consider the following factors and how they affect team development:

· Individual team members. Individual team members are the building blocksfor team building. Team members must be dedicated to a project, understandtheir roles and responsibilities, and be willing to work with others.

· Stakeholder feedback. The project manager and team members should usefeedback from stakeholders to gauge the performance of team members.

· Training programs. Problems arise when team members cannot perform theirassigned activities. Therefore, the project manager should take on skilled teammembers or be willing to train the team, when necessary.

A project manager conducts reviews as part of the team development process. Reviews are usefulbecause they help a project manager to

· Assess the quality of team members’ work· Determine team members’ level of job satisfaction· Ascertain team members’ competency· Establish goals for future performance

Requirements for successful team developmentSeveral factors contribute to the successful development of a project team:

· Team-building activities. Incorporate team-building activities into regularproject activities. For example, start meetings with a short team exercise, suchas allocating time for team members to give one another positive feedback onrecent job performance.



· Special occasions. Celebrate special occasions, such as successful achievementof project milestones.

· Rewards and recognition. Use rewards and recognition to show gratitude forteam members’ hard work.

· Collocation. When possible, have team members work at the same location.Working in close proximity fosters team unity and helps build trust amongmembers.

· Training. Make sure team members are adequately trained to perform theirassigned activities. This helps avoid frustration that can arise from the inabilityto perform specific tasks.

· Meetings. Meet team members both as a group and individually to discussproject issues. Including them in meetings and decision-making encouragesthem to commit to a project.

Reviews are beneficial to team development because they highlight the areas of improvement. Whena review reveals a problem, the project manager can take corrective action. The frequency of reviewsdepends on factors such as the size and duration of a project and the morale of team members.Effective team development improves communication, team members’ skill levels, and teamwork.Most importantly, effective team development improves a project’s overall performance.

Do it! C-1: Developing successful teamsExercises

1 Which of the following indicates why reviews are useful to a project manager?

A Highlight areas of improvement and reveal problems.

B Determine stakeholders’ level of satisfaction.

C Ascertain the project manager’s competence.

D Re-evaluate goals for future performance.

2 During project team building, a project manager must exercise goodinterpersonal and conflict resolution skills. True or false?

3 Write about an instance when your performance was excellent and the reasonsthat led to your peak performance.

Motivational theoriesExplanation Understanding the key factors that motivate team members can help a project manager during human

resource management. There are several human-behavior theories that a project manager must knowwhen determining how to motivate team members. These theories include:

· Maslow’s Hierarchy of Needs· McGregor’s Theory X and Theory Y· Herzberg’s Theory

Maslow’s Hierarchy of Needs

According to Maslow’s Hierarchy of Needs, individuals have the following five kinds of needs:1 Survival needs, which include food, water, and sleep.



2 Safety needs, which are fulfilled when individuals feel safe.3 Social needs, which are fulfilled when individuals interact with each other.4 Esteem needs, which are fulfilled when individuals are empowered and praised.5 Self-actualization needs, which are fulfilled when individuals seek knowledge, peace, esthetic

experiences, self-fulfillment, oneness with God, etc.

Maslow theorized that individuals are driven to satisfy survival needs first, followed by safety needs,and then social needs.

Maslow’s theory includes the supposition that individuals are driven to meet these needs. After theneeds are met, the drive to meet them is lost until the needs arise again. The application to humanresource management is that specific needs must be met for individuals to function at their peakphysical and mental levels, enabling them to fulfill their project responsibilities.

McGregor’s Theory X and Theory Y

According to McGregor’s Theory X, the average individual is lazy, avoiding work and responsibilitywhenever possible, needs constant supervision, and is motivated to work only when threatened.McGregor’s Theory Y suggests that the average individual is willing to work without requiringconstant supervision.

A project manager who agrees with Theory X is strict with team members, threatening them withundesirable consequences. This kind of project manager does not allow team members to participatein making project decisions.

A project manager who agrees with Theory Y motivates team members by allowing them to workwith little supervision and encourages participation in making project decisions. Allowing teammembers to work independently helps build their confidence. Listening to their input before makingdecisions can strengthen team members’ commitment to a project.

During human resource management, project managers should recognize whether Theory X orTheory Y applies best to their individual team members.

Herzberg’s Theory

Herzberg’s Theory has two notable characteristics. First, there are three levels of sentiment:satisfaction, dissatisfaction, and neutral. According to Herzberg’s Theory, individuals usually try tobe in the neutral zone, which is a state of neither satisfaction nor dissatisfaction.

Second, there are two main factors that influence a person’s level of satisfaction: hygiene factors andmotivators. Hygiene factors relate to the work environment and the presence of these factors preventsdissatisfaction. Motivators relate to the work itself, and their presence increases satisfaction.

Examples of hygiene factors include a team member’s salary and relationships among project teammembers. Examples of motivators include opportunities for professional growth and the feeling ofimportance to a project. During human resource management, a project manager can provide bothhygiene factors and motivators for team members.

Ways of motivating team members

There are several different approaches to motivating reluctant team members. For example, a projectmanager can motivate by setting a positive example for team members. A project manager mustnever make empty promises or disparaging remarks about senior managers or other employees.

Another approach to motivating team members is to offer incentives, such as bonuses, overtimewages, or extra vacation days. When team members are appreciated and rewarded for hard work, theyperform better than if their efforts go unrecognized.

Finally, some team members are motivated by challenges. Some individuals prefer challenging workbecause they derive satisfaction from overcoming difficulties, while others prefer less-stressfulactivities.

Do it! C-2: Motivating teamsExercises

1 Which motivational theory asserts that individuals feel satisfied, dissatisfied,



or neutral?

A Maslow’s Hierarchy of Needs

B McGregor’s Theory X and Theory Y

C Herzberg’s Theory

D Relative Needs Theory

2 What are some ways of motivating team members? What motivates you themost in a work environment?

3 Which motivational theory do you use to handle your team? Give reasons foryour answer.

Topic D: Using software to assist in human resourcemanagement

Explanation A simple responsibility assignment matrix and a histogram are useful tools that can help youeffectively manage human resources on projects. You can use several software packages, includingspreadsheets or project management software, such as Microsoft Project 2003, to create matrixes andhistograms. Many individuals do not realize that Project 2003 provides a variety of human resourcemanagement tools, including assigning and tracking resources, resource leveling, resource usagereports, over-allocated resource reports, and to-do lists.

Using Project 2003You can use Project 2003 to assign resources—including equipment, materials, facilities, andpersonnel—to tasks. Project 2003 enables you to allocate resources separately to projects or to poolresources and share them across multiple projects. By defining and assigning resources in Project2003, you can:

· Keep track of the whereabouts of resources through stored information andreports on resource assignments.

· Identify potential resource shortages that can lead a project to miss scheduleddeadlines and, possibly, to extend a project’s duration.

· Identify underutilized resources and reassign them, which might enable you toshorten a project’s schedule and reduce costs.

· Use automated leveling to make resources easier to manage.

Two helpful features of Project 2003 are the Resource Usage view and the Resource Usage report.Both these features help a project manager to see the personnel, the project activities assigned, andthe time allocated to complete the activities. Exhibit 7-7 shows an example of a Resource Usageview, and Exhibit 7-8 shows an example of a Resource Usage report. The Resource Usage viewshows the names of the team members or resources working on the project, the total number of hoursthey are scheduled to work, and a calendar indicating how many hours of work are scheduled eachmonth for each task. If a human resource is scheduled to work more than the permitted hours, Project2003 automatically displays a warning symbol (an exclamation point) in the column to the left of thatresource name. Note the exclamation point next to Joe Franklin’s name in the first row of Exhibit 7-7. On closely reviewing the number of hours, you can see that Joe Franklin is over-allocated fromFebruary through May. These numbers are displayed in red in Project 2003. You can adjust thecalendar by clicking an icon to see hours scheduled by months, days, and so on.

Exhibit 7-7: A resource usage view from Microsoft Project



Exhibit 7-8 is a Resource Usage report based on the same file. This standard report shows similarinformation, but the data is automatically formatted to show the number of hours each resource isscheduled to work each week during the project. In this exhibit, you can see that Joe Franklin isscheduled to work 120 hours during the weeks of March 16 to the last week in April. He is alsoscheduled to work 104 hours during the week of May 4. If a standard workweek is 40 hours or even60 hours, the project manager can easily see in the report that Joe Franklin will be unable to completethe work assigned to him.

Exhibit 7-8: A resource usage report from Microsoft Project

Several project management professionals might not be aware of the powerful cost-managementfeatures of Microsoft Project 2003, and many others might be unaware of its powerful humanresource management features. With the aid of the software, project managers can obtain informationin useful formats to help them decide how to most effectively manage human resources.

Project resource management involves much more than using software to assess and track resourceloading, level resources, and other associated tasks. Human resources are the most important assetsfor most projects, and this category of resources needs to be managed much differently. Humanresources need to be trained, skilled, motivated, and encouraged. They also need to coordinate withother resources to be able to work together for the benefit of the project. Good project managers notonly require skills for using tools and equipment, but also need to be able to manage and encourageteams to deliver their best on a project.

Do it! D-1: Using software to manage human resourcesQuestions and answers

1 How is Microsoft Project 2003 helpful in managing resources?

2 What information does Resource Usage view provide?

3 What features of Microsoft Project 2003 might be unknown to many projectmanagement professionals?

Unit summary: Human resource managementTopic A In this topic, you learned that the major processes of project human resource management include

organizational planning, staff acquisition, and team development. You also learned about theresponsibility assignment matrix (RAM), a key tool for defining roles and responsibilities onprojects.

Topic B In this topic, you learned about staff acquisition and negotiating for project personnel. You alsolearned that resource loading shows the number of individual resources an existing schedule requiresduring specific time frames, and that histograms are often used to show resource loading and identifythe over-allocation of resources. Finally, you learned that resource leveling is used to resolveresource conflicts by delaying tasks.

Topic C In this topic, you learned about team development and various motivational theories. You alsolearned about the various ways to motivate team members.

Topic D In this topic, you learned about the use of software to aid human resource management. You also



learned that using software can be helpful in cost management.

Independent practice activity 1 In your observations, what motivates workers, especially in IT?

Answers might vary.

2 Does your organization have recruiting and retention strategies? What distinguishes yourorganization from another in this area? What strategies most appeal to you?

Answers might vary.

3 Which theory argues that individuals are naturally lazy and avoid work and responsibilitywhenever possible?

A Mc Gregor’s Theory X

B Murphy’s Law

C Herzberg’s Theory

D McGregor’s Theory of Y

4 Which theory argues that individuals are willing to work hard without constant supervision?

A Herzberg’s Theory

B McGregor’s Theory of Z

C Johnson’s Theory of Management

D McGregor’s Theory of Y

U n i t 8Communications management



A Identify the key aspects of project communicationsplanning.

B Evaluate and measure the performance of a project.

Topic A: Communications planningExplanation The project communications variable consists of the following components: communications

planning, distributing information, performance reporting, and concluding a project.

Project communication is orchestrating timely distribution of project data and updates to theappropriate personnel. The goal of project communication is to ensure all the concerned peopleinvolved in a project are informed about their key responsibilities.

A project’s success or failure depends largely on the quality of communication within the projectteam, within the organization, and with contractors and vendors. Lack of communication can result inproject failure. Therefore, project communication should be a priority during project planning and



throughout the project life cycle.

Before beginning a project, it is important for you to understand project communications, itscomponents, and their integration into the project management process.

Main parts of a communications management planThe type of communications management plan varies with the needs of the project, but it isimportant for the plan to be prepared. The main parts of a communications management plan include:

· Description of a collection and filing structure for gathering and storingvarious types of information. For example, if a project team memberattends a conference and collects valuable information, where should it befiled and stored? If a supplier sends a new product brochure, where should itbe filed and stored? If the same supplier sends a new product brochure sixmonths later, how should the new brochure and the old brochure behandled? If a new product might affect other areas, such as accounting orengineering, how will the new product information be communicated to theareas? It can be difficult to organize work-related information, so it isimperative to develop and follow a system for filing such importantdocuments for all team members. In addition, several government agenciesrequire a detailed filing system and conduct inspections to ensure theirinstructions for filing are followed.

· A distribution structure describing what information goes to whom,when, and how. For example, is it important to specify whether all statusreports are written or some are oral? Does every stakeholder receive everymaster schedule update? Do executives receive different status reports thanteam members?

· A format for communicating key project information. Is there a templatefor project team members to follow in preparing written and oral statusreports? Is there a master list of all acronyms and definitions? Confusion in aproject can be avoided by providing templates and examples of key projectreports.

· A production schedule for obtaining the information. Have resourcesbeen assigned to create, assemble, and disseminate key project information?Do stakeholders know when to expect different information and when theyneed to attend key meetings? Has time been allowed for review andapproval of key project documentation? It is important to allow time forcreating key project information and ensuring its quality.

· Access methods for obtaining the information. Who is allowed to access a draft document?Can all team members and stakeholders access all project documentation? Which informationis available online and which is available only as printed copy or other formats? Who canaccess the printed copies of documents? Who must attend which meetings?

· A method for updating the communications management plans as the project progressesand develops. Who will update the communications management plan when changes aremade? How will the new plan be distributed?

· A stakeholder communications analysis. It is important to know the types of information tobe distributed to each stakeholder. By analyzing stakeholder communications, you can preventwasting time or money in creating or disseminating unnecessary information. The project’sorganizational chart is a starting point for identifying internal stakeholders. You must alsoinclude key stakeholders outside the project organization, such as the customer, the customer’ssenior management, and subcontractors.

The following table provides a sample stakeholder analysis that shows the stakeholders who willreceive the written communication. Note that the analysis includes information, such as the contactperson for the information, the due date for the information, and the preferred format for theinformation. You can create a similar table to show the stakeholders who should attend specificproject meetings. It is always a good idea to include a comments section with these types of tables to



record special considerations or details related to each stakeholder, document, and meeting.

Stakeholders Document name Documentformat

Contactperson

Due

Customer Management Monthly StatusReport

Printed copy Gail Feldman, Tony Silva

First of everymonth

Customer BusinessStaff

Monthly StatusReport

Printed copy Julie Grant, Jeff Martin

First of everymonth

Customer TechnicalStaff


E-mail Evan Dodge, Nancy Michaels

First of everymonth

Internal Management Monthly StatusReport

Printed copy Bob Thompson First of everymonth

Internal Business andTechnical Staff


Intranet Angie Liu First of everymonth

Training Subcontractor Training Plan Printed copy Jonathan Kraus 11/1/2003

Software Subcontractor Software Implementation Plan

E-mail Barbara Gates 6/1/2003

Many projects do not include enough information on communications. Project managers, seniormanagers, and team members assume the use of existing communications channels to relay projectinformation. However, the problem with using these channels is that each group, as well as otherstakeholders, has different communication needs.

Creating a communications management plan and reviewing it with project stakeholders early in aproject helps prevent potential communication problems. If organizations work on many projects,ensuring consistency in handling project communications helps the organization run smoothly.

Steps for planning communicationsWhen planning communications for a project, a project manager should complete the following steps:

1 Conduct stakeholder analysis.2 Determine information requirements.3 Decide on the means of communication.4 Identify communication constraints.

Do it! A-1: Planning communicationsQuestions and answers

1 Which of the following is a component of project communications planning?

A Concluding a project

B Defining quality standards

C Acquiring project staff

D Planning for change

2 What is the first step to take during communications planning?

A Decide the means of communication.

B Identify communication constraints.

C Conduct stakeholder analysis.

D Develop a communications management plan.



Suggestions for improving project communicationsExplanation You learned how good communication is vital to the management and success of IT projects. This

section highlights a few areas that all project managers and team members should consider in theirquests to improve project communication.

Developing good communication skills

Some people might be born with great communication skills, and others easily acquire technicalskills. However, it is rare to find someone with a natural ability for both. Fortunately, communicationand technical skills can be developed. Most IT professionals enter the field because of their technicalskills. Most find, however, that communication skills are the key to advancing their careers,especially if they want to become good project managers.

Most companies spend a lot of money on technical training for their employees, even whenemployees might benefit more from communications training. A minimal investment incommunications and presentation training can tremendously impact individuals, their projects, andtheir organizations. These skills also have a much longer shelf life than many of the skills acquired intechnical training courses.

Improving communication is a task for the leadership of a company. If senior management allowsemployees to give horrible presentations, write sloppy reports, or behave poorly at meetings, thenemployees will not want to improve their communication skills. Senior management must set highexpectations and lead by example. Some organizations send all IT professionals to training thatincludes development of technical and communication skills. Some organizations allocate time inproject schedules for preparing drafts of important reports and presentations and incorporatingfeedback on these drafts. Other organizations include time for informal meetings with customers tohelp develop relationships. As with any other goal, communication can be improved with properplanning, support, and leadership from senior management.

Most importantly, communication is not simply about talking, it is about listening too.

Running effective meetings

A well-run meeting can be a vehicle for fostering team building and reinforcing expectations, roles,relationships, and commitment to projects. However, a poorly run meeting can be detrimental to aproject. For example, a terrible kickoff meeting—a meeting held at the beginning of a project or aproject phase where all major project stakeholders discuss project objectives and plans—might causesome important stakeholders to decide not to support the project. Following are some guidelines tohelp make your meetings more effective and time efficient:

· Determine if a meeting can be avoided. Do not have meetings if there is abetter way of achieving the objective at hand. For example, a projectmanager might know that he or she needs approval from a senior manager toengage another team member on the project. It might take a week or longerto schedule even a 10-minute meeting on the senior manager’s calendar.Instead, an e-mail message or a phone call describing the situation andjustifying the request is a faster, more effective approach than holding ameeting.

· Define the purpose and the intended outcome of the meeting. Be specificabout the result of the meeting. Is the purpose to brainstorm ideas, providestatus information, or solve a problem? Make the purpose of meetings clearto all planners and participants. All meetings should have a purpose and anintended outcome.

· Determine who should attend the meeting. Do certain stakeholders have to attend a meetingto make it effective? Should only the project team leaders attend a meeting, or should theentire project team be involved? Many meetings are most effective with the minimum numberof participants possible, especially if decisions must be made. It is important to determine whoshould attend a meeting based on the meeting’s purpose and intended outcome.

· Provide an agenda to participants before the meeting. Meetings are most effective when



the participants are prepared for it. Ensure that participants read reports before the meetingand collect necessary information. Insist on an agenda so that the meeting is directed towardsachieving an outcome and the attendees get a chance to decide whether they really need toattend.

· Prepare handouts, visual aids, and make logistic arrangements ahead of time. Creatinghandouts and visual aids requires meeting organizers to sort out their thoughts and ideas. Thisusually helps the entire meeting run effectively. Making logistical arrangements by booking anappropriate room, making necessary equipment available, and providing refreshments or entiremeals, if appropriate, also improves a meeting’s effectiveness. Project managers and theirteam members should take the necessary time to prepare for meetings, especially importantones with key stakeholders.

· Run the meeting professionally. Introduce people, restate the meeting’s purpose, and stateany ground rules that should be followed. Assign facilitators to make sure important items arediscussed, watch the time, encourage participation, summarize key issues, and clarifydecisions and action items. Designate a team member to take minutes and send them out soonafter the meeting is over. Minutes should be short and should focus on crucial decisions andaction items.

· Build relationships. Depending on the culture of the organization and project, it might helpto build relationships by making meetings fun experiences. For example, it might beappropriate to use humor, refreshments, or prizes for good ideas to keep the participantsactively involved. If used effectively, meetings are a good way to build relationships.

Do it! A-2: Improving project communicationsExercises

1 What are the areas that should be considered to improve projectcommunication?

2 Which of the following is a guideline to help make your meetings moreeffective?

A Decide who should attend the meeting.

B Develop better communication skills.

C Acquire technical skills.

3 As a project manager, what guidelines would you follow to run an effectivemeeting?

Distributing informationExplanation Information distribution is vital to a project’s success. For example, people need information to carry

out their responsibilities toward the completion of a project. If project team members do not haveaccess to the information they need, then they cannot complete their activities effectively.

In addition, distributing information allows stakeholders to monitor the project progress as well asrecord the changes made to the project.



Means of distributing information

There are a number of ways information is distributed during project execution. The following aresome common means of information distribution.

· Written, which includes reports, memos, spreadsheets, business letters, faxes,and files.

· Oral, which includes presentations, meetings, and conference calls.· Multimedia, which includes videoconferencing and teleconferencing.· Internet or intranet, which includes e-mail, Web sites, and online bulletin

boards.

The form of communication you use depends on three factors:· Who is the recipient?· What is the information?· When does the recipient need the information?

Informal communication

Informal communication between a project manager and team members can build trust and strongworking relationships.

As a project manager, you should encourage informal communication. This strengthens your workingrelationships with team members, which can increase their willingness to communicate with youinformally. Team members who are uncomfortable talking to their project managers are likely towithhold information about problems, jeopardizing the project’s success.

You can encourage informal communication by making yourself available to team members. Beingavailable to team members includes visiting them in their work areas, having lunch with them, andlistening to their ideas and complaints.

Using templates for project communications

Many find it difficult to write a performance report or prepare a 10-minute technical presentation fora customer review. To simplify preparing project communication, project managers need to provideexamples and templates for common project communication items, such as project descriptions,project charters, monthly performance reports and oral status reports. Good documentation fromearlier projects can be used as examples. Samples and templates of both written and oral reports areparticularly helpful for team members who need to write project documents or prepare projectpresentations.

A one-page project description can be used to show a “snapshot” of an entire project on one page.For example, senior managers might require all project managers to provide a brief projectdescription as part of a quarterly management review meeting. A project description should includethe project objective, scope, assumptions, cost information, and schedule information.

You can also include information from the project’s Gantt chart to highlight key deliverables andother milestones. The following table further describes the elements of a project description.

Element DescriptionObjective Describe the objective of the project in one or two sentences. Focus on the

business benefits of doing the project.

Scope Briefly describe the scope of the project. Include the business functionsinvolved and the main products the project will produce.

Assumptions Summarize the most critical assumptions for the project.

Cost Provide the total estimated cost of the project. If desired, list the total cost foreach year.



Schedule Provide summary information from the project’s Gantt chart as shown inExhibit 8-1. Focus on summary tasks and milestones.

Exhibit 8-1: Sample template for a project description

Exhibit 8-2 provides an example of a template file created in Project 2003. Team members candevelop and follow a similar template for their projects. Notice the main tasks in this template followthe project management process of project initiating, planning, executing, controlling, and closing.The template includes milestones to highlight significant events, such as signing the letter ofagreement or the dispatch of major deliverables. It also includes hyperlinks that link users to templatefiles they can use to create a letter of agreement, a progress report, or a final report.

Hyperlinks to other project documentation—such as meeting minutes, product information, andpresentations—can also be included.

Exhibit 8-2: Gantt chart template

When the members of a project team develop their communications management plan, they shouldalso decide the templates to be used for key documentation. To simplify using templates, anorganization can make project templates readily available online. The project team should alsounderstand the documentation expected by senior management and customers for each particularproject. For example, if a project sponsor or customer wants a one-page monthly progress report for aspecific project, but the project team delivers a 20-page report, there are communication problems. Inaddition, if particular customers or senior managers want specific items in all final project reports,they must ensure the project team is aware of those expectations and modify any templates to takethese requirements into account.

Developing a communications infrastructure

A communications infrastructure is a set of tools, techniques, and principles that provide a foundationfor the effective transfer of information. Tools include e-mail, project management software,groupware, fax machines, telephones, teleconferencing systems, document management systems, andword processors. Techniques include reporting guidelines and templates, meeting ground rules andprocedures, decision-making processes, problem-solving approaches, and conflict resolution andnegotiation techniques. Principles include providing an environment for open dialogue using “straighttalk” and following an agreed upon work ethic.

Because the defense industry has been involved in project management for a long time, manygovernment agencies and defense contractors use formal communications infrastructure that isalready set up.

For example, in the early 1980s—before personal computers were commonly used—the U.S. AirForce created standard forms for reporting project progress information, outlines for developingproject final reports, regulations describing the progression of major projects, inspections of projectarchives, and forms and procedures for creating project Gantt charts.

Today, some organizations have designed customized systems for collecting and reporting projectinformation and most use several forms of IT as part of their project communications infrastructure.Some organizations use intranets to keep track of all project information and others use Lotus Notesor other groupware to maintain consistent and complete project information.

Do it! A-3: Distributing informationQuestions and answers

1 Why does a project manager need to be concerned about informationdistribution?



2 What are the different ways in which information can be distributed?

Topic B: Performance reportingExplanation Performance reporting is part of a project’s communication system. The purpose of

performance reporting is to collect and distribute information to project stakeholdersabout the effective use of a project’s resources.

Performance reporting can affect project costs when time for writing the reports is not allocated in aproject’s schedule. The time between one performance report and the next is called a reportingperiod. A reporting period might coincide with the beginning and end of a project phase.

When reporting periods do not coincide with project phases, it might be helpful to team members ifthe project manager includes dates for reporting periods on the project’s schedule. Including reportingperiods on the schedule helps team members know when they need to write performance reports.

Measuring project performanceControlling a project involves measuring progress toward project objectives and taking correctiveaction when requested. Performance reports and performance reviews are two methods of measuringthe performance of a project. Running status meetings with employees is also an effective method tomeasure performance.

Performance reviews

Performance reviews are meetings conducted to discuss a project’s status. A project manager shouldhold performance reviews throughout the project to make sure team members and project activitiesprogress as planned. During performance reviews, a project manager should:

· Ensure every project team member is included.· Inform the project team about any changes to the project.· Identify problems and encourage team members to brainstorm solutions.· Motivate team members.· Reaffirm the project’s goals.· Ask team members to put forth their questions regarding the project.

Performance reviews are important because they bring the project team members together, which canhelp build a sense of teamwork. In addition, performance reviews give team members the opportunityto voice concerns about a project.

The frequency of performance reviews depends on how the project progresses. Frequency might alsodepend on the size of the project because large projects are more likely to get off track than smallprojects.

Performance reports

If any part of a project varies from the project’s plan, then the variation must be included in aperformance report. Performance reports include both progress and status reports.

A progress report is a detailed summary of the accomplishments of a project team andthe methods they used to accomplish them. Progress reports should include theresources that worked to complete an activity versus the planned resources that werescheduled to work on it.



Some frequent problems with progress reporting include:· Too much information or the wrong kind of information· Information not distributed in a timely manner

To avoid these problems when reporting progress, it is important to:· Make sure information is current and relevant.· Create reminders for the due dates of progress reports.

A status report covers a broader range of information than a progress report. A status report is adetailed account of a project’s status at a specific phase. The focus of a status report is on tasks suchas activity completion, resource consumption, and budget expenditure. Status reports must include thecurrent status of all activities completed during a reporting period so that the project manager candetermine whether there are any problems and the corrective action that can be taken.

Performance reports can be classified by frequency and/or purpose. The following are commonclassifications of performance reports:

· Routine· Exception· Special analysis

Routine

Routine, or regular performance reports, are not necessarily scheduled, but might be distributed atintervals that coincide with project phases or milestones. The frequency of performance reportsdepends on how smoothly the project functions.

Exception

Exception performance reports provide project team members with information they need to make adecision or notify them of a change that affects their work. Exception performance reports are alsodistributed to stakeholders to inform them that a decision has been made.

Special analysis

Special analysis performance reports contain information about the results of a special study. Specialstudies might be conducted as part of a project or to determine a solution to a problem encounteredduring a project. Special analysis reports are useful not only to a current project but are valuabledocumentation of lessons learned for future projects.

Individual status meetings

Individual status meetings are important to project communication. One-on-one status meetings withmembers of a project’s team can be more informative than performance reviews because somemembers of the project team might not feel comfortable voicing opinions or concerns in a largegroup.

Individual status meetings are also great opportunities for a project manager to offer constructivefeedback, receive feedback, and know project team members.

Do it! B-1: Evaluating performanceExercises

1 During performance reviews, a project manager should do which of thefollowing.

A Reaffirm the project’s goals.

B Test a new product’s functionality.

C Discuss changes in processes.

D Estimate the project’s remaining duration.



2 What are the classifications of performance reports?

3 Explain the importance of performance reviews.

4 What is the importance of individual status meetings?

Tools for measuring performanceExplanation The tools and techniques used to measure the performance of an employee are:

· Variance and trend analysis· Earned value analysis

Variance and trend analysis

Variance analysis is used to gauge how closely a project adheres to its schedule, resource use, andbudget provisions. Variance analysis can also be used to determine whether or not a project’s qualitystandards are met.

Trend analysis is used to evaluate a project’s progress over time. For example, trend analysis can beused to determine whether a solution to a problem is effective by determining whether or not theproblem exists after its solution is implemented. Trend analysis can also be used to show patterns ofresource consumption across a project.

Earned value analysis

Overall project performance is measured by completing an earned value analysis, which involvescalculating a dollar amount for every project activity. These dollar amounts are calculated using thefollowing values:

· Budgeted Cost of Work Scheduled, or BCWS (or PV, Planned Value), is a portion of theproject budget expected to be spent during a specific time period. For example, $1,000 isassigned to Activity A, which takes 6 days to complete.

· Budgeted Cost of Work Performed, or BCWP (or EV, Earned Value), is the total budgetedcost of all work completed to date on a project. For example, imagine that Activity A isallotted $1,000. Activity A is only 40% complete at the time that BCWP is calculated.Therefore, only $400 of the $1,000 allotted for Activity A is included in the BCWP.

· Actual Cost of Work Performed, or ACWP (or AC, Actual Cost), is the amount of moneyspent on completing a specific activity within a specific time period. For example, if the 6days worth of work completed on Activity A actually cost $5,000, then $5,000 is yourACWP.

Earned value analysis is important to performance reporting because it can give the project managerand team members the most accurate measure of whether or not a project’s activities are beingcompleted as planned.

Calculations used during earned value analysis

The following calculations are used during earned value analysis:



· Cost variance· Schedule variance· Cost performance index· Schedule performance index

Do it! B-2: Using tools to measure performanceExercises

1 Which of these calculations is used during earned value analysis?

A Schedule variance

B Actual Cost of Work Performed

C Budgeted Cost of Work Performed

2 What are the tools and techniques used to measure the performance of anemployee?

Unit summary: Communications managementTopic A In this topic, you learned about the importance of communications planning and stakeholder

analysis in determining the communications needs for all those involved in a project.

Topic B In this topic, you learned that a project manager must determine the most appropriate means fordistributing various types of project information. You also learned about performance reporting.

Independent practice activity 1 What are the steps for planning communications?

a. Conduct stakeholder analysis.

b. Determine information requirements.

c. Decide on the means of communication.

d. Identify communication constraints.

2 List some ways you can encourage the use of good communication skills?

Answers might vary, but can include: provide communications training, senior management must set highcommunications expectations and lead by example, and allocate time in project schedules for preparing drafts ofimportant reports and presentations.

3 In your experience, how has project information been distributed? Can this process be improved?If so, how?

Answers might vary.

U n i t 9



Risk management



A Discuss and classify project risks.

B Identify risks and explain the use of risk identificationtools.

C Define and discuss qualitative risk analysis.

D Discuss the steps involved in quantitative risk analysis.

E Discuss risk response planning.

F Describe how to monitor and control risks.

Topic A: Risk management planningExplanation Risk management is a project variable that involves identifying and measuring the risks associated

with a project. To manage project risks successfully, you must understand the components of riskmanagement. These are:

· Risk management planning· Risk identification· Qualitative risk analysis· Quantitative risk analysis· Risk response planning· Risk monitoring and control

Planning for risk managementRisk management planning is a process that decides how to approach and plan the riskmanagement activities for a project. The main output of this process is a riskmanagement plan, which documents the procedures for handling risk throughout theproject life cycle. It summarizes the results of the risk identification, qualitativeanalysis, quantitative analysis, response planning, and monitoring and controlprocesses. Project teams hold planning meetings to help create the risk managementplan. The project team must review project documents, such as the project charter,WBS, and definitions of roles and responsibilities, and organizational documents, suchas corporate risk management policies and templates, when creating a risk managementplan. It is also important to review the risk tolerances of various stakeholders. Forexample, if the project sponsor is risk-averse, the project might require a differentapproach to risk management than if the project sponsor were a risk seeker.

Project teams also need to define specific deliverables for the project according to potential risks,assign resources and personnel to work on those deliverables, and evaluate milestones associated withthe risk mitigation approach. Risk mitigation is reducing the impact of a risk event by reducing theprobability of its occurrence. The level of detail included in the risk management plan varies with theneeds of the project.

The following list provides the questions that a risk management plan should address:· Why is it important to take or not take this risk in relation to project objectives?



· What is the specific risk, and what are the risk mitigation deliverables?· How will the risk be mitigated? (Which risk mitigation approach will be used?)· Who is responsible for implementing the risk management plan?· When will the milestones associated with the mitigation approach occur?· Which resources are required to mitigate the risk?

The risk management plan can include a methodology for risk management, roles and responsibilitiesfor activities involved in risk management, budgets and schedules for the risk management activities,descriptions of scoring and interpretation methods used for the qualitative and quantitative analysesof risk, threshold criteria for risks, reporting formats for risk management activities, and proceduresfor tracking and documenting risk activities.

In addition to a risk management plan, many projects include contingency plans, fallback plans, andcontingency reserves. Contingency plans are predefined actions that the project team takes if anidentified risk event occurs. For example, if the project team is aware that a new release of a softwarepackage might not be available in time for use in their project, they might have a contingency plan touse the existing, older version of the software. Fallback plans are developed for risks with a highimpact on meeting project objectives, and are used if attempts to reduce the risk are not effective.Contingency reserves or contingency allowances are provisions made available by the project sponsorand used to mitigate cost or schedule risks if changes in project scope or quality occur. For example,if a project runs behind schedule because team members are inexperienced with a new technology,the project sponsor may provide funds from contingency reserves to train the project members inusing the new technology.

Do it! A-1: Discussing risk managementQuestions and answers

1 What is a risk management plan?

2 List the components of risk management.

Project riskExplanation To manage project risks, you must first understand what constitutes a risk:

· Risks are associated with uncertain outcomes or lack of knowledge of future events.· Risks are measured in terms of the probability of their occurrence and the consequences of

not achieving project goals.· Deviations from the project’s quality standards, as detected in the products, also constitute

risks.

Classifications for project risks

You can classify project risks in three ways:· Knowns are situations that the project team is certain will occur. For example,



the project team is aware that to complete a project they need specificresources.

· Known-unknowns are identifiable uncertainties. For example, the team isaware that the project will bear expenses related to the utilities used during theproject, but is not aware of the exact cost.

· Unknown-unknowns are situations that the project team cannot anticipate. Forexample, an unforeseen incident or a mishap may adversely impact the projectoperations.

Although you can classify risks in several ways, the most common classifications are business risksor insurable risks. Business risks result in opportunities for profits or losses. For example, if asnowstorm damages the structure of a facility under construction, this is considered a business risk.

Insurable risks, also called pure risks, result only in losses. For example, if a project team member isinjured on the job, this is considered an insurable risk. It is important to understand that if insuranceis purchased, a project manager does not have to manage insurable risks. In this example, the teammember’s compensation would cover the injured employee.

Other broad categories of risk include:· Market risk. If an information technology (IT) project develops a new product

or service, will that product or service be useful to the organization ormarketable to others? Will users accept and use the product or service? Willcompetitors be able to create a better product or service faster, making thecurrent project a waste of time and money?

· Financial risk. Can the organization afford to undertake the project? Howconfident are stakeholders in the project’s financial projections? Will the projectmeet NPV, ROI, and payback estimates? If not, can the organization afford tocontinue the project? Is this project the best way to use the organization’sfinancial resources?

· Technological risk. Is the project technically feasible? Will hardware,software, and networks function properly? Will the technology be available intime to meet project objectives? Could the technology be obsolete before auseful product can be developed?

Several studies show that IT projects share some common sources of risk. For example, the StandishGroup did a follow-up study to the 1995 CHAOS research, which was called Unfinished Voyages.This study brought together 60 IT professionals to elaborate on how to evaluate a project’sprobability of success. The following table lists the Standish Group’s success potential scoring sheetand shows project success criteria.

Success criterion Weights

User involvement 19

Executive management support 16

Clear statement of requirements 15

Proper planning 11

Realistic expectations 10

Smaller project milestones 9

Competent staff 8

Ownership 6

Clear visions and objectives 3



Hard-working, focused staff 3

Total 100

The Standish Group lists questions under each criterion of success to help decide the number ofpoints to assign to a project. For example, you assign a value to the user involvement criterion byadding 3.8 points to the score for each of the following questions you answer in the affirmative:

· Do I have the right user(s)?· Did I involve the user(s) early and often during a project?· Do I have a quality user(s) relationship?· Do I make involvement easy?· Did I find out what the user(s) need(s)?

You can use data from research to identify the scope of software project failures, the major factorsthat cause software projects to fail, and the key ingredients that can reduce project failures.

Do it! A-2: Classifying project risksExercises

1 What constitutes a risk?

2 _______ risks always result in losses.

3 Situations that the project team cannot anticipate are classified as_______risks.

A Known

B Known-unknown

C Unknown-unknown

D Market

Topic B: Risk identificationExplanation Risk identification is a process of gaining an understanding of the potential

unsatisfactory outcomes associated with a project. After understanding the potentialsources of risks, you can proceed to use checklists, flowcharts, or interviews to helpidentify them. Identifying sources of risks helps you identify potential risk events andrisk symptoms for your project.

Risk identification checklists based on risks encountered in previous projects provide a meaningfultemplate for understanding risks in a current project. You can use checklists, such as those developedby the Standish Group or other groups, to help identify risks associated with IT projects.

In addition to identifying risks based on the nature of the project or products developed, it is alsoimportant to identify potential risks in project management knowledge areas, such as scope, time,cost, and quality. The following table lists potential risk conditions that can exist within eachknowledge area.1 Using risk identification checklists, combined with this approach, helps you identifyand analyze risks.



Knowledgearea

Risk conditions

Integration Inadequate planning; poor resource allocation, poor integrationmanagement, and lack of post-project review

Scope Poor definition of scope or work packages, incomplete definition ofquality requirements, and inadequate scope control

Time Errors in estimating time or resource availability, poor allocation andmanagement of float, and early release of competitive products

Cost Estimating errors; inadequate productivity, cost, change, or contingencycontrol; poor maintenance, security, and purchasing

Quality Poor attitude toward quality; substandard design, materials, orworkmanship; and inadequate quality assurance program

Human Resources Poor conflict management, poor project organization and definition ofresponsibilities, and absence of leadership

Communications Carelessness in planning or communicating and improper or noconsultation with key stakeholders

Risk Ignoring risk, unclear assignment of risk, and poor insurance management

Procurement Unenforceable conditions or contract clauses and adversarial relations

Identifying project risksProject risks can be classified:

· According to the type of risk being faced. Classifying risks in low, medium,or high-level categories helps stakeholders and project team membersunderstand the level of risk they will face.

· According to whether they are internal or external. The project team hasmore influence over internal risks, making them easier to manage.

· Based on their source. Frequently, the source of risk can be controlled. Theproject team can gain an understanding of common sources of risk by reviewinga historical database of information on earlier projects. In addition, the projectteam can learn about risks specific to its project by talking to subject matterexperts.

The risks identified for a specific project are driven by the nature of the product being created. Forexample, if the product is based on a proven template, there will be less risk involved than if theproject is developing a new product. The probable risks to be considered for these two scenarios arevery different. Therefore, an understanding of the project deliverables and overall project objectivesis critical to risk identification.

Do it! B-1: Identifying risks for a projectExercises

1 Risk identification involves determining whether or not to take risks associatedwith a particular project. True or false?

2 Which of the following is a manner in which project stakeholders can classifyrisks?

A According to the source of the risks, internal or external to the



organization

B According to the time at which risks occur

C According to the activities they will affect

D According to stakeholders’ desire to accept or reject a project

Tools for identifying risksExplanation Several tools and techniques are available for identifying risks. Project teams often begin the risk

identification process by reviewing project documentation, analyzing project assumptions, andgathering risk-related information. For example, after reviewing project documents and assumptions,project team members and external experts discuss these documents and assumptions and askimportant questions about them. After broadly identifying the potential risks at an initial meeting, theproject team might then use different information-gathering techniques to further identify risks. Fourcommon information-gathering techniques include:

· Brainstorming· The Delphi Technique· Interviewing· SWOT analysis

Brainstorming

Brainstorming is a technique by which a group attempts to generate ideas or find a solution for aspecific problem by amassing ideas spontaneously and without judgment. This approach can be usedto create a comprehensive list of risks that can be addressed later in the qualitative and quantitativerisk analysis processes. Teams must take care not to overuse or misuse brainstorming. Althoughbusinesses use brainstorming widely to generate new ideas, psychological studies show thatindividuals working alone produce a greater number of ideas than the same individuals producethrough brainstorming in small face-to-face groups. Group effects, such as fear of social disapproval,the effects of authoritative hierarchy, and domination of the session by those more vocal andexpressive than others often inhibit idea generation.2

The Delphi Technique

One common approach to gather information from experts is the Delphi Technique. The basicconcept of the Delphi Technique is to derive a consensus among a panel of experts who makepredictions about future developments. Developed by the Rand Corporation for the U.S. Air Force inthe late 1960s, the Delphi Technique is a systematic, interactive forecasting procedure based onindependent and anonymous input regarding future events. It uses repeated rounds of questioning andwritten responses, including feedback to earlier-round responses, to take advantage of group input,while avoiding the biasing effects possible in oral panel deliberations.

To use the Delphi Technique, you must select a panel of experts in specific area. For example, acompany president can use the Delphi Technique to help her understand why that company is nolonger winning many contracts. The president can consult experts in the business area. Each expertanswers questions related to the president’s scenario, then the president or a facilitator evaluates theresponses, together with opinions and justifications and provides the feedback to each expert in thenext iteration. The president then continues this process until the group responses converge to aspecific solution. If the responses vary, the facilitator of the Delphi Technique needs to determine ifthere is a problem with the process.

Interviewing

Interviewing is a fact-finding technique for collecting information in face-to-face or telephonediscussions. Some interviews are conducted over e-mail and instant messaging. Interviewingpersonnel with experience on similar projects is an important tool for identifying potential projectrisks. For example, if a new project involves using a particular type of hardware or software, a personwith a recent experience on that product can describe the problems encountered on a past project.



SWOT analysis

Strengths, weaknesses, opportunities, and threats (SWOT) analysis is often used in strategic planning.It can also assist in risk identification by having project teams focus on the broad perspectives ofpotential risks for a project. For example, before writing a proposal, a president can ask a group ofemployees to discuss the company’s strengths, weaknesses in relation to the project, and theopportunities and threats. In addition, the president can discuss with the team information aboutcompeting firms and their probability of winning a contract as well as the impact of winning acontract on future awards and possible expansion of the company’s business. Applying SWOT topotential projects can help identify the broad risks and opportunities.

Other risk identification techniques

Two other techniques for risk identification include the use of checklists and diagramming.Checklists based on risks encountered in previous projects provide a meaningful template forunderstanding risks in a current project. You can use checklists to help identify risks in IT projects.Diagramming techniques include using cause-and-effect diagrams, flow charts, and influencediagrams. System or process flow charts are diagrams that show how different parts of a systeminterrelate. For example, many programmers create flow charts to show programming logic. Aninfluence diagram represents decision problems by displaying essential elements, including decisions,uncertainties, and objectives, and how they influence each other.3

Output of risk identificationThe main outputs of the risk identification process are risk events identified for your project, triggersor risk symptoms, and input to other processes, such as updates to the WBS or schedule based onidentified risks. Risk events are specific effects that might adversely impact a project. Examples ofrisk events are significant changes in scope, the performance failure of products developed as part ofa project, specific delays in the project due to rejection of work or labor unavailability, supplyshortages, and other events such as, litigation against your company and strikes. Triggers, or risksymptoms, are indicators of actual risk events. For example, cost overruns on early activities may besymptoms of poor cost estimates. Defective products may be indicators of a low-quality supplier.

Documenting potential risk symptoms for projects also helps the project team identify potential riskevents and determine corrective actions.

Do it! B-2: Discussing risk identification toolsExercises

1 What are the four common information-gathering techniques?

2 When brainstorming possible project risks, the project team should:

A Organize ideas into logical groups.

B Use the work breakdown structure (WBS) to generate ideas.

C Evaluate each idea as it is suggested.

D Keep an open mind as ideas are suggested.

Topic C: Qualitative risk analysisExplanation Qualitative risk analysis involves assessing the probability and impact of identified

risks to determine their magnitude and priority. This section describes examples ofusing a probability/impact matrix to produce a prioritized list of risks, and using theTop 10 Risk Item Tracking technique to create a ranking for project risks and to tracktrends in qualitative risk analysis. It also discusses the importance of expert judgment



in performing risk analysis.

Calculating risk factors using probability/impact matrixesYou can describe a risk probability or consequence as high, moderate, or low. For example, ameteorologist might predict high probability of heavy showers on a day. If you are planning anoutdoor event on the same day, the consequences of the showers will be adverse.

To quantify risk probability and consequence, the Defense Systems ManagementCollege (DSMC) developed a technique for calculating risk factors—representing theoverall risk of specific events based on their probability of occurrence and theconsequences on the project. The technique uses a probability/impact matrix that showsthe probability, or likelihood, of risks and the impact or consequences of the risks.

You can estimate the probability of a risk occurrence based on several factors, as determined by theunique nature of each project. For example, factors evaluated for potential hardware or softwaretechnology risks could include the technology not being mature, the technology being too complex,and an inadequate support for developing the technology. The impact of a risk might include the non-availability of fallback solutions or the consequences of not meeting planned performance, cost, andschedule estimates.

Exhibit 9-1 provides an example of a probability/impact matrix used in assessing the risk of varioustechnologies developed to make aircrafts reliable. Aircrafts were declared unfit to fly because ofreliability problems with their various components and problems with their maintenance. The AirForce sponsored a multimillion-dollar research project, called the High Reliability Fighter study, inthe mid-1980s, to evaluate potential technologies for improving the reliability of fighter aircrafts. Thepurpose of the High Reliability Fighter study was to help the Air Force decide the technologies inwhich to invest to make its planes more reliable and maintainable, thereby decreasing their downtime.

Exhibit 9-1: Sample probability/impact matrixes for qualitative risk assessment

The Air Force used the matrix shown in Exhibit 9-1 to assess the risk of proposed technologies, suchas providing radial tires for planes, using a more efficient fuel system, or developing a sophisticatedonboard computer system to monitor and adjust various systems on the aircraft. The top matrix inExhibit 9-1 was used to assign a Probability of Failure (Pf) value to each proposed technology, andthe bottom matrix was used to assign a Consequence of Failure (Cf) value. Experts used theirjudgment to assign a value for both the probability of failure and impact of each proposedtechnology. For example, an expert assigned a Pf value of 0.1 for the radial tires technology becausethe hardware existed, had a simple design, and multiple programs and services used it. Likewise, theexpert assigned a Cf value of 0.9 to a risk with no acceptable alternatives, an impact on increasinglife cycle costs, and low probability of meeting schedule dates and reducing the aircraft downtimefactor. The expert then used these values in a formula to calculate an overall risk factor. A risk factoris defined as the probability of failure (Pf) plus the consequence of failure (Cf) minus the product ofthe two.4 For example, a technology with a Pf of 0.1 and a Cf of 0.9 will have a risk factor of .01, or(.1 + .9) - (.1 * .9) = .01.

Exhibit 9-2 provides an example of how the risk factors were used to graph the probability andconsequence of failure for proposed technologies in the Air Force study. The figure classifiespotential technologies (dots on the chart) as high-, medium-, or low-risk, based on the probability andconsequences of failure. The researchers for this study highly recommended that the Air Force investin the low- to medium-risk technologies and suggested that they not pursue the high-risktechnologies.5 You can see that the rigor behind using the probability/impact matrix and risk factorsprovides a much stronger argument than simply stating that risk probabilities or consequences arehigh, medium, or low.

Exhibit 9-2: Chart showing high-, medium-, and low-risk technologies

Do it! C-1: Using probability/impact matricesQuestions and answers



1 Why would you use a qualitative risk analysis?

2 What does a probability/impact matrix do?

3 Discuss the chart shown in Exhibit 9-2. What does it depict?

Top 10 Risk Item TrackingExplanation Top 10 Risk Item Tracking is a qualitative risk analysis tool. In addition to identifying

risks, it ensures awareness of risks throughout the life cycle of a project. This toolhelps establish a periodic review of the project’s most significant risk items with theorganization’s management and, optionally, with the customer. The review begins witha summary of the status of the top ten sources of risk for the project. The summaryincludes each item’s current ranking, previous ranking, the number of times it appearson the list over a period, and a summary of progress made in resolving the risk itemsince the previous review. The Microsoft Solution Framework (MSF) contains a riskmanagement model that includes developing and monitoring a Top 10 master list ofrisks.

The following table provides an example of a Top 10 Risk Item Tracking chart that you can use at amanagement review meeting for a project. This example includes only the top five risk items. Eachrisk item is ranked on the basis of the current month, previous month, and the number of months therisk was listed in the top ten risks. The second column briefly describes the progress for resolvingeach particular risk item.

Risk item Risk resolution progressInadequateplanning

Working on revising the entire project plan. In the current month, this riskitem has been ranked at 1, and in the previous month it was ranked at 2.This risk item has been in the Top 10 list for 4 months.

Poor definition Holding meetings with the project customer and sponsor to clarify scope.In the current month, this risk item has been ranked at 2, and in theprevious month it was ranked at 3. This risk item has been in the Top 10list for 3 months.

Absence ofleadership

After the previous project manager quit, a new manager was assigned tolead the project. In the current month, this risk item has been ranked at 3,and in the previous month it was ranked at 1. This risk item has been in theTop 10 list for 2 months.

Poor costestimates

Revising cost estimates. In the current month, this risk item has beenranked at 4, and in the previous month also it was ranked at 4. This riskitem has been in the Top 10 list for 3 months.

Poor timeestimates

Revising schedule estimates. In the current month, this risk item has beenranked at 5, and in the previous month also it was ranked at 5. This riskitem has been in the Top 10 list for 3 months.

A risk management review accomplishes several objectives. First, it keeps management and thecustomer (if included) informed of the major influences that can pose problems for the project.Second, by involving the customer, the project team might be able to consider alternatives that canmitigate the risk, such as reducing the scope of a project by postponing some work for a later projectin order to meet cost and schedule goals. Third, it promotes confidence in the project team by



demonstrating to management and the customer that the team is aware of the significant risks, has awell-defined mitigation strategy, and is effectively implementing the strategy.

Expert judgmentMany organizations rely on the intuitive feelings and past experience of experts in performingqualitative risk analyses. Organizations might use expert judgment in lieu of or in addition to othertechniques for analyzing risks. For example, experts can categorize risks as high, medium, or low byusing or not using sophisticated techniques, such as identifying risk factors.

Using sophisticated risk analysis tools has a number of disadvantages. For example, the output isonly as good as the input, and the team using the tools might be using poor assumptions. The mathand statistics used in various techniques might confuse the team. Because of these disadvantages, it isimportant to include expert opinion when using both qualitative and quantitative risk assessmenttechniques.

Do it! C-2: Discussing Risk Item Tracking and expert judgmentQuestions and answers

1 Why would you use Risk Item Tracking?

2 Why is expert judgment needed in risk management?

Topic D: Quantitative risk analysisExplanation The quantitative risk analysis process analyzes the probability of each risk, its

consequence on project objectives, and the overall project risks. It often followsqualitative risk analysis; yet, both processes can be performed together or separately.On some projects, the team might perform only qualitative risk analysis. The nature ofthe project and the availability of time and money affect the type of risk analysistechniques to be used. Large, complex projects involving leading-edge technologiesoften require extensive quantitative risk analysis. The main techniques for this type ofanalysis include decision tree analysis and simulation, as described in the followingsections. Teams can also use simple approaches, such as interviewing and sensitivityanalysis, to assist in quantitative risk analysis.

Decision trees and expected monetary valueA decision tree is a diagramming method used to help select the best course ofaction in situations where the future outcome is uncertain. A common applicationof decision tree analysis involves calculating expected monetary value (EMV).EMV is the product of a risk event probability and the risk event’s monetary value.Exhibit 9-3 illustrates this concept using a decision about the project(s) that anorganization might pursue. Suppose a company is deciding whether to submit aproposal for Project 1, Project 2, both the projects, or neither project. It can draw adecision tree with two branches, one for Project 1 and one for Project 2. Thecompany can then calculate the EMV to make this decision.



Exhibit 9-3: Expected monetary value (EMV) example

To use EMV, you must estimate the probability, or chances, of events occurring. For example, inExhibit 9-3, there is a 20 percent probability or chance (P=.20) that a hypothetical firm will winProject 1, which is worth $300,000 in profits, the outcome of the top branch in the exhibit. There isan 80 percent probability (P=.80) that the company will not win the competition for Project 1, andthe outcome is estimated to be –$40,000, which means that the company will need to invest $40,000into Project 1, with no reimbursement if it does not win the award.

The sum of the probabilities for outcomes for each project must equal 1 (for Project 1, 20 percentplus 80 percent). Probabilities are determined based on expert judgment. The president or otheremployees of the company should have some idea of the company’s probability of winning theprojects.

Exhibit 9-3 also shows probability and outcomes for Project 2. There is a 20 percent probability thatthe company will lose $50,000 on Project 2, a 10 percent probability the company will lose $20,000,and a 70 percent probability that the company will earn $60,000.

To calculate the EMV for each project, you multiply the probability by the outcome for eachpotential outcome for each project. To calculate EMV for Project 1, moving from the left to the right,multiply the probability with the outcome for each branch. In this example, the EMV for Project 1 is$28,000.

0.2($300,000) + 0.8(–$40,000) = $60,000 – $32,000 = $28,000

The EMV for Project 2 is $30,000.0.2(–$50,000) + .1(–$20,000) + .7($60,000).= –$10,000 –$2,000 + $42,000 =$30,000

Because the EMV provides an estimate for a decision’s total dollar value, you want to obtain apositive number; the higher the EMV, the better. Because the EMV is positive for both Projects 1and 2, the company would expect a positive outcome from each and can bid on both projects. If thecompany had to choose between the two projects, perhaps because of limited resources, the companyshould bid on Project 2 because it has a higher EMV.

Notice that in Exhibit 9-3, if you look at the potential outcome of the two projects, Project 1 looksmore appealing. You can earn $300,000 in profits from Project 1, but you can only earn $60,000 forProject 2. If the president were a risk seeker, he or she will naturally want to bid on Project 1.However, there is only a 20 percent chance of winning $300,000 on Project 1, and there is a 70percent chance of earning $60,000 on Project 2. Using EMV helps account for all possible outcomesand their probabilities of occurrence, thereby reducing the tendency to seek overly aggressive orconservative risk strategies.

Do it! D-1: Discussing decision trees and EMVQuestions and answers

1 What is a decision tree?

2 What is EMV?

3 If projects A and B have an EMV of $40,000 and $35,000, respectively,which project would you choose?

SimulationExplanation A sophisticated quantitative risk analysis technique is simulation. Simulation uses a



representation or a model of a system to analyze that system’s expected behavior orperformance. Most simulations are based on some form of Monte Carlo analysis.Monte Carlo analysis simulates a model’s outcome many times to provide a statisticaldistribution of the calculated results. For example, a Monte Carlo simulation candetermine if a project will meet its schedule or cost goals given a 10 percent, 50percent, or 90 percent probability.

The basic steps of a Monte Carlo simulation are:1 Assess the range for the variables being considered and determine the probability distribution

for each. In other words, collect the most likely, optimistic, and pessimistic estimates for thevariables in the model and determine the probability of each variable falling between theoptimistic and most likely estimates.

2 For each variable, select a random value based on the probability distribution for theoccurrence of the variable. For example, suppose an optimistic estimate is 10 (units can bedays, dollars, labor hours, or any other unit that the model uses). In addition, suppose themost likely estimate is 20, and the pessimistic estimate is 50. If there is a 30 percentprobability of being between 10 and 20 (the optimistic and most likely estimates), then 30percent of the time, select a random number between 10 and 20, and 70 percent of the time,select a number between 20 and 50 (the pessimistic estimate).

3 Run a deterministic analysis or one pass through the model using the combination of valuesselected for each variable.

4 Repeat steps 2 and 3 several times to obtain the probability distribution of the results. Therequired number of iterations depends on the number of variables and the degree ofconfidence needed in the results, but it typically lies between 100 and 1,000.

You can use software to perform the steps required for a Monte Carlo simulation. Several PC-basedsoftware packages are available that perform Monte Carlo simulations.

Another technique for quantifying risk is Program Evaluation and Review Technique (PERT)analysis. PERT analysis involves making three estimates of each activity’s duration. The threeestimates represent a pessimistic or worst case estimate, an optimistic or best case estimate, and amost likely estimate, similar to those described in a Monte Carlo simulation. However, the PERTformula weights the most likely estimate four times more than the pessimistic or optimistic estimates,instead of assigning a probability for the estimate falling between the optimistic and most likelyestimates and then running a simulation of the model. Although this approach can be better thanusing a discrete estimate, it does not provide the flexibility or accuracy of a Monte Carlo simulation.

Do it! D-2: Discussing simulationExercises

1 What does simulation do?

2 Which of the following is one of the steps of Monte Carlo simulation?

A Run a deterministic analysis.

B Simulate the process.

C Calculate the EMV.

D Select the best course.

Topic E: Risk response planningExplanation After risks are identified and quantified, an organization must develop a response to them. Doing so

involves defining steps for enhancing opportunities and developing plans for handling risks or threatsto project success. After the project team completes the three-step process for risk assessment, it must



develop responses to the risks. To develop effective risk responses, take the following actions:· Plan appropriate responses.· Present recommendations to stakeholders.

Planning responsesRisk response consists of planning the appropriate actions for responding to project risks. Riskresponse is not only a component of the risk management variable, but also a part of the second stepof the project management process—project planning. After the project team determines that a riskwarrants a response, the team must develop a strategy to minimize the extent of damage that the riskcan cause.

After the most important risks are identified, the project team must plan appropriate responses tothese risks or determine ways to minimize the probability of occurrence of these risks.

The project’s risk management policies regulate the actions a project team can take in response tohigh-impact risks. Before completing this step, the project team might need to gather moreinformation about the nature of the possible risks. There are four basic categories for possible riskresponse plans:

· Risk avoidance· Risk acceptance· Risk transference· Risk mitigation

Risk avoidance

Risk avoidance involves eliminating a specific threat or a risk, usually by eliminating its causes. Itmight not be possible to eliminate all risks, but specific risk events can be eliminated. For example, aproject team might decide to continue using specific hardware or software for a project because it isfamiliar with its functioning. Other products might be available, but if the team is not familiar withthem, the products might pose significant risks. Using familiar hardware or software eliminates thisrisk.

Risk acceptance

Risk acceptance means accepting the consequences should a risk occur. For example, a project teamplans for a big project review meeting, the venue for which is undecided. The team can adopt anactive approach to risk by developing a contingency or a backup plan if the specific meeting site isunavailable. Alternatively, the team can adopt a passive approach and use the facility theirorganization provides them.

Risk transference

Risk transference is shifting the consequence, responsibility, and management of a risk to a thirdparty. For example, risk transference is often used in dealing with financial risk exposure. A projectteam may purchase special insurance or warranty protection for specific hardware needed for aproject. If the hardware fails, the insurer must replace it within an agreed-upon period.

Risk mitigation

Risk mitigation involves reducing the impact of a risk event by minimizing the probability of itsoccurrence. Examples of risk mitigation include using proven technology, engaging competentproject personnel, using various analysis and validation techniques, and purchasing maintenance orservice agreements from subcontractors.

The following table provides general mitigation strategies for technical, cost, and schedule risks onprojects.6 Note that increasing the frequency of project monitoring and using a WBS and PERT/CPMare strategies for all three areas. Increasing the project manager’s authority is a strategy for mitigatingtechnical and cost risks, and selecting the most experienced project manager is recommended forreducing schedule risks. Improving communication is also an effective strategy for mitigating risks.



Technical risks Cost risks Schedule risksEmphasize team supportand avoid stand-aloneproject structures

Increase the frequency ofproject monitoring.

Increase the frequency ofproject monitoring.

Increase project managerauthority

Use WBS and PERT/CPM. Use WBS and PERT/CPM.

Improve problem handlingand communication

Improve communication,project goals understandingand team support.

Select the most experiencedproject manager.

Increase frequency ofproject monitoring

Increase project managerauthority.

Use WBS and PERT/CPM

Important output from risk response planning includes development of a risk response plan, analysisof residual risks, and analysis of secondary risks. The risk response plan describes identified risks,personnel assigned responsibilities for managing risks, results of risk analyses, response strategies,budget and schedule estimates for responses, and contingency and fallback plans. Residual riskscontinue to impact the project even after the team implements all the response strategies. Forexample, even though the team might use a stable hardware product on a project, the risk that theproduct may fail to functional properly still exists. Secondary risks are a direct result of implementinga risk response. For example, using the more stable hardware might cause a risk of peripheral devicesfailing to function properly. Other outputs of risk response planning include contractual agreements,estimates of needed contingency reserve, and input to other processes and the project plan.

Presenting recommendations to stakeholdersAfter appropriate risk responses are developed, the project team should create a“Conclusions and Recommendations” document that outlines the results of riskassessments. These suggestions should be presented to the project stakeholders soproject decisions can be made with consideration of possible risks.

This information enables stakeholders to determine if they want to accept the project’s risks orabandon the project entirely. In addition, once they choose to accept the risks, it helps themunderstand how to convert the risks into opportunities.

Understanding stakeholders’ needs and risk tolerance levels help the project team to decide the fourrisk response plans, or combination of plans, that it wants to implement. The project manager shouldgain insight into stakeholders’ needs by interacting frequently with the stakeholders who maximallyimpact the project.

Learning the nature of each stakeholder’s interest in a project, understanding their motivation andbehavior, and assessing how they react to various approaches help the project team make the bestpossible risk decisions.

Do it! E-1: Responding to risksQuestions and answers

1 What is a risk response?

2 What is risk mitigation?

3 List some expected outputs of risk response planning.



4 Which of the following is one of the basic categories for possible riskresponse plans?

A Acceptance of risks

B Understanding stakeholders’ needs

C Occurrence of these risks

Topic F: Risk monitoring and controlExplanation Risk monitoring and control involves executing the risk management processes and the

risk management plan to respond to risk events. Executing the risk managementprocesses means ensuring that risk awareness is an ongoing activity that the entireproject team performs throughout the entire project. Project risk management does notend with the initial risk analysis. Identified risks may not materialize, or theirprobability of occurrence or loss may diminish. Conversely, the project team mightdetermine that previously identified risks have a high probability of occurrence or ahigh estimated loss value. The team might identify new risks as the project progresses.Newly identified risks need to go through the same process as those identified duringthe initial risk assessment. A redistribution of resources devoted to risk managementmight be necessary because of relative changes in risk exposure.

Developing project standards for risk managementSome standards that can be applied to most projects include:

· Risk management plan· Procurement· Contingency reserves· Alternative strategies· Insurance

Risk management plan

A risk management plan is developed before a project begins and is used to guide a project team’sresponses to risks throughout a project. A project’s risk management plan should outline theprocedures a team must follow to manage project risks. For example, a risk management plan caninclude guidelines, such as the procedures to identify risks, the persons responsible for managingspecific risks, and the contingency plans to be implemented.

Risk management plans are part of the overall project plan and can be formal, containing a lot ofdetailed information, or informal, containing only the basic information.

Procurement

Procurement involves acquiring goods from a supplier external to the organization running theproject. Procurement is a beneficial way to respond to project risks, because it transfers risks to acontractor. For example, if a project requires use of heavy equipment that can cause damage to theproject site, the project manager can hire an operator from the company that leases the equipment sothat the risk of any damage caused by the machine operator is transferred to the leasing company.

Contingency reserves

Contingency reserves are provisions in a project’s plan, which are used to minimize cost or schedulerisks. Reserves are developed to cover unexpected needs or risk damages that can occur throughout aproject.



It is important to develop contingency reserves before a project begins because neither the projectteam nor the stakeholders want to make changes to the project’s scope after the project begins. Ifcontingency reserves are negotiated into the cost and time allowances from the beginning, theyprovide the project manager with some flexibility.

Alternative strategies

When a project team identifies a potential risk, it develops alternative strategies to respond to thatrisk before it occurs. Use of alternative strategies can enable the team to prevent or avoid the risk bychanging the planned approach to the part of the project at risk. For example, additional qualitycheckpoints might simplify the problems with the project’s end product, resulting in high overallrevenues.

Insurance

Sometimes, the best response to project risks is to insure them. The type and cost of insurancecoverage available depends on the type of project being completed and the type of risks to becovered.

Types of project reserves

There are two types of project reserves, management reserves and contingency reserves. Keystakeholders control management reserves, which are created to account for risks in the category of“unknown-unknowns.” For example, a key component of a project’s product is unavailable when it ismost required, but a slightly more expensive alternative is available. In this situation, stakeholderscan use their management reserves to purchase the more expensive component without exceeding thebudget.

The project manager controls contingency reserves, which are created to account for risks in thecategory of “known-unknowns.” For example, a “known-unknown” situation can occur if the projectmanager knows that during the first phase of the project the team will need to work overtime, but theamount of overtime is unknown because it is dependent upon the availability of resources.Contingency reserves can be used if the amount of overtime exceeds the amount allotted in thebudget.

Do it! F-1: Developing project standardsExercises

1 What are the ways of developing project standards?

2 What are the two types of project reserves?

3 Which of the following project standards is developed to cover unexpectedneeds or risk damages that can occur throughout a project?

A A risk management plan

B Procurement contracts

C Alternative strategies

D Contingency reserves



Risk controlExplanation The final step in project risk management is risk control. Risk control entails executing

the risk management plan to minimize the effects of project risks. It is important todocument risks and their effects in a database for reference during subsequent projects.Risk control is a continuous process that requires monitoring the project’s conditionand taking action to minimize the adverse affects of risks on projects.

Risk control is not only a component of the risk management variable, but also a part of the fourthstep of the project management process—project controlling. In addition, any time a new project riskoccurs, the project manager must return to the planning step of the process to identify and assess therisk.

Carrying out separate risk management plans involves monitoring risks on the basis of definedmilestones and making decisions regarding risks and mitigation strategies. It might be necessary toalter a mitigation strategy if it becomes ineffective, implement a planned contingency activity, oreliminate a risk that no longer exists from the list of potential risks.

Project teams, sometimes, use workarounds—unplanned responses to risk events—when contingencyplans are not defined. A workaround is an unplanned response, or an alternative solution, developedto account for a problem created by taking a risk. Workarounds are considered unplanned because theresponse to the problem is not defined before the risk occurs. During project execution, if a risk isaccepted, its negative impact on the project goals might not be immediately apparent. However, if theproduct of a project fails to perform as expected, the quality is compromised by accepting the risk.For example, if a product is expected to generate returns of $80,000 per year for ten years, but it hasa major defect, customers will not buy the product. Therefore, the product will not generate theexpected rate of return.

You can use several tools and techniques to monitor and control risks. These include project riskaudits, periodic risk reviews such as the Top 10 Risk Item Tracking method, earned valuemanagement, technical performance measurement, and additional risk response planning. Outputs ofthis process include corrective action, project change requests, and updates to other plans.

Do it! F-2: Controlling risksExercises

1 Risk control is a part of which project management process?

2 A workaround is a generic response developed before a project begins toaccount for problems created by taking risks. True or false?

Using software to assist in project risk managementExplanation You can use software tools to help you with various risk management processes. You

can use databases to record risks, spreadsheets to aid in tracking and quantifying risks,and sophisticated risk management software to help you develop models and usesimulations to analyze and respond to various risks.

You can use Microsoft Project to perform PERT analysis and add-on software to perform MonteCarlo simulations. For example, Risk+ (by C/S Solutions, Inc.) is a comprehensive risk analysis toolthat integrates with Project to quantify the cost and schedule uncertainties associated with projects.This tool uses Monte-Carlo-based simulation techniques to answer questions such as: What are thechances of completing the project by December 1, 2005? How confident are we that project costswill remain below $10 million? What are the chances that this task will end up on the critical path?

To use a Monte Carlo simulation to estimate the probability of meeting specific schedule goals, you



collect optimistic, pessimistic, and most likely duration estimates for project tasks on a projectnetwork diagram, which is similar to the PERT technique. You must also collect estimates for theprobability of completing each task between the optimistic and most likely times. You can use thesame approach for cost estimates. You can collect optimistic, pessimistic, and most likely estimatesfor factors that determine project costs and establish the probability of the cost factors rangingbetween the optimistic and most likely values.

For example, an expert might estimate that a task will most likely take three months to complete, butit can take as little as one month or as much as nine months to complete. When asked the probabilityof completing the task between one and three months, the expert might report the probability as only20 percent. Another expert might estimate that the project task will take five months to complete, butit can take as little as two months, or as much as seven months to complete. This expert mightestimate that the probability of completing that task between two and five months is 80 percent.Estimating the probability of completing tasks between the optimistic and most likely times helps toaccount for estimating bias. Compared with a PERT calculation, the Monte Carlo approach simulatesvarious probability distributions for each estimate instead of applying the same simple PERTvariation for all estimated durations. Unlike PERT, which focuses on schedule estimates, MonteCarlo simulation can also be used to estimate cost risks.

Exhibit 9-4 illustrates the results from a Monte Carlo simulation of a project schedule. Thesimulation was created using Microsoft Project and the Risk+ add-on software. On the left side ofExhibit 9-4, a chart displays columns and an S-shaped curve. The height of each column, read by thescale on the left of the chart, indicates how many times the project was completed within thespecified time interval during the simulation run, which is the sample count. In this example, thetime interval is two working days, and the simulation was run 250 times. The first column shows thatthe project was completed by 1/29/05 only two times during the simulation. The S-shaped curve,read from the scale on the right of the chart, shows the cumulative probability of completing theproject on or before a specific date. The information is also shown in tabular form on the right sidein Exhibit 9-4. For example, there is a 10 percent probability that the project will be completed by2/8/05, a 50 percent chance of completion by 2/17/05, and a 90 percent chance of completion by2/25/05.

Exhibit 9-4: Sample Monte Carlo simulation results for a project schedule

You can also use Monte Carlo simulations to help estimate project costs. First, you develop a modelfor estimating the total project cost. Suppose project costs can be estimated based on the number ofpounds of material, the cost per pound, the number of hours for specific workers, and the cost perhour for each category of worker (such as managers, programmers, and electrical engineers). You canrun a Monte Carlo simulation of the total project cost based on estimates of the optimistic,pessimistic, and most likely values for all the four variables.

Exhibit 9-5 shows the results of a Monte Carlo simulation to estimate total project cost. Thesesimulation results show that there is a 20 percent chance of the project costing less than $175,693, a65 percent chance of it costing less than $180,015, and a 95 percent chance of the total project costbeing under $184,528. Given the risk tolerance, you can use this information to decide how much tobid on a project if you are the seller, or how much to budget for the project if you are the buyer. Forexample, if you are a risk-averse seller, you might want to bid $185,000 to be extremely confidentthat you will not exceed the budget.

Exhibit 9-5: Sample Monte Carlo simulation results for project cost

In addition to estimating overall probabilities for project goals, such as completion dates or costestimates, you can use Monte Carlo simulations to find top sources of risk (risk drivers). Forexample, a cost simulation might show that the number of labor hours budgeted for the electricalengineers was the main source of cost risk for a project.

Simulations are powerful tools, and it is important that the team members who use them understandall the variables, inputs, and outputs involved. As with any software product, the information that isobtained is only as good as the information provided. Therefore, it is important to collect data fromsources who understand the project or specific tasks involved. It is also important to test the modelused in simulations to ensure that it provides realistic results.



Do it! F-3: Using software to manage risksQuestions and answers

1 How can you manage risks using Microsoft Project 2003?

2 Discuss Monte Carlo simulations and explain their significance in managingrisks.

Unit summary: Risk managementTopic A In this topic, you learned that a risk management plan documents the procedures for handling risk

throughout a project life cycle. Then, you learned the multiple ways you can classify risks includingknowns, known-unknowns, unknown-unknowns, business, market, financial, technological andinsurable risks.

Topic B In this topic, you understood the potential sources of risks and how to identify risks. Then, youlearned about the four common techniques used for identifying risk: brainstorming, the DelphiTechnique, interviewing, and SWOT analysis. Finally, you identified the output of the riskidentification process.

Topic C In this topic, you learned about qualitative risk analysis. You also learned the techniques you canuse to perform qualitative risk analysis including the probability/impact matrix and the Top 10Risk Item Tracking technique.

Topic D In this topic, you learned about quantitative risk analysis. You also learned the techniques you canuse to perform quantitative risk analysis including decision tree analysis and simulation.

Topic E In this topic, you learned about risk response planning. You identified the four basic categories ofrisk response plans: risk avoidance, risk acceptance, risk transference, and risk mitigation.

Topic F In this topic, you learned about risk monitoring and control. You learned that the project standardsfor risk management include: risk management plan, procurement, contingency reserves,alternative strategies, and insurance. Finally, you learned that risk control entails executing the riskmanagement plan to minimize the effects of project risks. You also learned the techniques that youcan use to monitor and control risks.

Independent practice activity 1 Suppose your organization is considering a new project that involves developing an information

system so that all employees, students, or customers can access and maintain their own humanresource-related information, such as address, marital status, and tax information. The mainbenefits of the system are reduction in human resources personnel and accuracy of information.For example, if an employee, student, or customer uses a new telephone number or e-mailaddress, he or she is responsible for adding the new data in the system. The new system alsoallows employees to change their tax withholdings or pension plan contributions. Identify fivepotential risks for this new project. Provide a detailed description of each risk and proposestrategies for mitigating each risk.

Answers might vary.

2 When should project risks be managed?

Risks should be managed throughout the project life cycle.

3 Describe the Delphi Technique of information gathering.

The basic concept of the Delphi Technique is to derive a consensus among a panel of experts who make predictionsabout future developments.

4 Should risk management be viewed proactively?



Yes

5 When should a risk be avoided?

When eliminating a specific threat or a risk is feasible, usually by eliminating a risk’s causes. It might not be possibleto eliminate all risks, but specific risk events can be eliminated. For example, a project team might decide to continueusing specific hardware or software for a project because it is familiar with its functioning. Other products might beavailable, but if the team is not familiar with them, the products might pose significant risks. Using familiar hardwareor software eliminates this risk.

6 In your experience, which method(s) have you used to determine project risks that require themaximum attention?

Answers might vary.

Endnotes

# Reference

1 Wideman, R. Max. Project and Program Risk Management: A Guide to Managing Project Risks andOpportunities, Upper Darby, PA: Project Management Institute, 1992, II-4.

2 Couger, J. Daniel. Creative Problem Solving and Opportunity Finding, Boyd & Fraser PublishingCompany, 1995.

3 Lumina, Influence Diagrams. (2003) www.lumina.com/software/influencediagrams.html.

4 Defense Systems Management College. Systems Engineering Management Guide, Washington, DC,1989.

5 McDonnell Douglas Corporation. “Hi-Rel Fighter Concept,” Report MDC B0642, 1988.

6 Couillard, Jean. “The Role of Project Risk in Determining Project Management Approach,” ProjectManagement Journal, Project Management Institute (December 1995).

U n i t 1 0Procurement management



A Describe procurement planning, identify the tools andtechniques used for procurement planning, and describesolicitation planning.

B Perform source selection, identify types of contracts, anddescribe contract administration and close-out.



Topic A: Procurement planning and solicitationExplanation Project procurement management includes the processes required to acquire goods and services for a

project from sources external to the performing organization. The processes involved in procurementmanagement are:

· Procurement planning. Involves identifying the materials to procure and whento procure them.

· Solicitation planning. Involves preparing the documents needed for solicitationand determining the evaluation criteria for the contract award.

· Solicitation. Involves receiving proposals, quotations, bids, or offers.· Source selection. Involves choosing from among potential vendors.· Contract administration. Involves managing relationships with vendors.· Contract close-out. Involves completion and settlement of the contract.

Exhibit 10-1 summarizes these processes and shows the important milestones at each stage of theprocess.1

Exhibit 10-1: Project procurement management processes and key output

Project procurement planningProcurement planning is the process of identifying the project needs that can be best met by usingproducts or services from sources external to the organization. It involves deciding:

· Whether to procure?· How to procure?· What to procure?· How much to procure?· When to procure?

It is important to be thorough and efficient in the procurement planning process.

Input needed for procurement planning includes the project scope statement, product descriptions,market conditions, constraints, and assumptions. For example, a large company might consideroutsourcing the delivery, maintenance, and basic user training and support for laptops supplied to itsinternational sales and marketing personnel. The company makes this decision according to theprocurement planning input. If the suppliers can provide these services at a reasonable cost, thecompany can decide to outsource these services. Doing so reduces fixed and recurring costs for thecompany and enables it to focus on its core business.

You must understand the need to procure goods or services and the input required for procurementplanning. However, you must also clearly define the scope of the project, the products, marketconditions, and constraints and assumptions before undertaking procurement planning.

Tools and techniques for procurement planningTools and techniques of procurement management include:

· Performing make-or-buy analysis· Consulting internal experts

Make-or-buy analysis

Make-or-buy analysis is a management technique used to determine whether a particular product orservice should be developed by the organization or purchased from a vendor. The analysis involvesestimating the internal costs of providing a product or service and comparing the estimate with thecost of outsourcing. Consider a company with an international sales-force of 1,000 personnel who



require laptops and need to be provided maintenance, training, and user support. Using make-or-buyanalysis, the company estimates its cost as an initial investment of $3 million and annual supportcosts of $2 million. The estimate includes costs for hardware and software, travel, shipping, andtechnical support. (Note that a make-or-buy analysis must include the life cycle cost.) The companycan outsource this service if vendors quote less than the company’s cost estimates.

Internal experts

Internal experts must be consulted as part of procurement planning. Considering the same exampleagain, experts might suggest that the company will be unable to provide quality maintenance,training, and service for laptops because the company will be unable to station personnel with therequired skills at different locations. Experts within the company might also be aware of thecompetitors outsourcing this type of work and might help identify vendors that can undertake thiswork.

Experts external to the company, including potential vendors, can also provide expert judgment. Forexample, vendors might suggest an option for salespeople to purchase the laptops themselves at areduced cost. This option would solve problems of employee turnover—exiting employees wouldown their laptops and new employees would purchase a laptop through the program. An internalexpert might then suggest that employees receive a technology bonus to help offset what they mightview as an added expense. Expert judgment, both internal and external, is important in makingprocurement decisions.

Do it! A-1: Discussing procurement planningExercises

1 What is procurement planning?

2 What input is needed for procurement planning?

3 Which of the following are the tools and techniques of procurementmanagement?

A Internal experts

B Market conditions

C Project scope statement

D Make-or-buy analysis

Solicitation planningExplanation Solicitation planning involves preparing the documents required for solicitation and

determining the evaluation criteria for the contract award. Two common examples ofsolicitation documents include:

· Requests for Proposal (RFPs)· Requests for Quotes (RFQs)

Requests for Proposal

Request for Proposal (RFP) is a document used to solicit proposals from prospectivevendors. Organizations issue RFPs to potential vendors. For example, if a governmentdepartment wants to automate its work practices, it issues an RFP so that vendors canrespond with proposals. Vendors might propose various hardware, software, and



networking solutions to meet the government’s needs.

Writing a good RFP is a critical part of project procurement management. To generate a good RFP,expertise is invaluable. Several examples of RFPs are available within different companies, frompotential contractors, and from government agencies. Legal requirements are often involved inissuing RFPs and reviewing proposals, especially for government projects. It is important to consultexperts familiar with the solicitation planning process for a particular organization. To make sure theRFP contains the required information to provide the basis for a good proposal, the buyingorganization should ask the following questions:

· Can you develop a good proposal based on the information in the RFP?· Can you determine detailed pricing and schedule information based on the RFP?

Exhibit 10-2 provides a basic outline for creating an RFP. Its main sections include a statement of thepurpose, background information about the organization issuing the RFP, the basic requirements forthe products and/or services being proposed, the hardware and software environment (whichconstitutes important information for IT-related proposals), a description of the RFP process, thestatement of work and schedule information, and appendices, if required. A simple RFP may be threeto five pages long, while an RFP for a larger, more complicated procurement might be hundreds ofpages long.

Exhibit 10-2: Outline for a Request for Proposal (RFP)

Request for Quote

A Request for Quote (RFQ) is a document used to solicit quotes or bids fromprospective sellers. Organizations often use an RFQ for solicitations that involvespecific items. For example, if the government wants to purchase 100 personalcomputers with specific features, it issues an RFQ to potential vendors. RFQs usuallydo not take as long to prepare as RFPs, nor do responses to them.

Other solicitation documents

Other documents used in solicitation planning include invitations for bid, invitations for negotiation,and initial contractor responses. All solicitation documents must be written to facilitate accurate andcomplete responses from prospective sellers. They should include background information about theorganization and the project, the relevant statement of work, a schedule, a description of the desiredform of response, evaluation criteria, pricing forms, and any required contractual provisions. Theyshould also be comprehensive enough to ensure consistent, comparable responses, but flexibleenough to allow consideration of seller suggestions for improved ways to meet the requirements.

It is essential for organizations to prepare a form of evaluation criteria, preferably before they issue aformal RFP or RFQ. Organizations use criteria to rate or score proposals, and they often assign aweight to each criterion to indicate its importance. Some examples of criteria include the technicalapproach (30 percent weight), management approach (30 percent weight), past performance (20percent weight), and price (20 percent weight). The criteria should be specific and objective.

For example, if the buyer wants the seller’s project manager to be a certified Project ManagementProfessional (PMP), this requirement must be stated clearly in the procurement documents andfollowed during the award process. Losing bidders may pursue legal recourse if the buyer does notfollow a fair and consistent evaluation process.

INPUT, a Web-based IT market research and marketing services firm, provides market reports andbuyer guides to assist organizations in IT outsourcing. One buyer guide offers suggestions onselection criteria, which includes reputation and past performance, industry knowledge, strategicpartnership, and ability to meet needs. INPUT’s research shows that most contracts includeprovisions to safeguard against unsatisfactory partnering, but most companies hesitate to exercise theprovisions. Therefore, buyers should look for a supplier with a proven record of excellence andreputation for quality.2

Organizations should heed the saying, “Let the buyer beware.” It is critical to evaluate proposals onmore than the appearance of the paperwork. A key factor in evaluating bids, particularly for projectsinvolving IT, is the bidders’ past performance record. The RFP should require bidders to list other



similar projects they have worked on and provide customer references for those projects. Reviewingperformance records and references helps reduce the risk of selecting a vendor with a poor trackrecord. Vendors should also demonstrate their understanding of the buyer’s needs, their technical andfinancial capabilities, their management approach to the project, and their price for delivering thedesired goods and services.

Some IT projects also require potential sellers to deliver a technical presentation as part of theirproposal. The proposed project manager should lead the potential seller’s presentation team. Whenthe external project manager leads the proposal presentation, the organization can build a relationshipwith the potential provider. Visits to contractor sites can also help the buyer get information aboutthe seller’s capabilities and management style.

SolicitationSolicitation involves obtaining proposals or bids from prospective sellers. Prospectivesellers complete most of the work in this process, at no cost to the buyer or the project.The buying organization is responsible for advertising the solicitation, and might holda bidders’ conference to answer questions about the solicitation. The main output ofthis process is receipt of proposals or bids.

Organizations can advertise in many different ways to procure goods and services. Sometimes, aspecific seller might be the buyer’s preferred vendor. In this case, the buyer provides solicitationinformation to only that vendor. If the preferred vendor responds favorably, both organizationsproceed to work together.

In many cases, however, several sellers may be qualified to provide the desired goods and services.Solicitation with several potential vendors often provides the buyer advantage of the competitivebusiness environment and allows the development of competitive bidding strategies. As a result, thebuyer is able to procure goods and services at low cost.

A bidders’ conference, also called a vendor conference or pre-bid conference, is a meeting withprospective sellers prior to preparation of a proposal. These conferences help ensure that everyoneinvolved shares a clear and common understanding of the products or services that the buyer desires.The buyer may incorporate responses to questions as amendments to the procurement documentsbefore, during, or after the conference.

Do it! A-2: Discussing solicitation planningExercises

1 What is an RFP?

2 What is solicitation?

3 You are planning to install 150 computers in your organization. Design anRFP that you will send to prospective sellers.

Topic B: Source selection and contract managementExplanation After buyers receive proposals, they select a vendor or decide to cancel the

procurement. Source selection involves evaluating bidders’ proposals, choosing thebest proposal, negotiating the contract, and awarding the contract. This process is oftenlong and tedious. Stakeholders in the procurement process should be involved inselecting the best vendor for the project. Often, different teams evaluate different



sections of the proposals. There might be a technical team, a management team, and acost team to focus on their respective fields. Buyers frequently develop a short list ofthe top three to five vendors to reduce the work involved in selecting a source.

Making source selectionExperts in source selection recommend that buyers use formal proposal evaluation sheets duringsource selection. Exhibit 10-3 provides a sample proposal evaluation sheet that the project team canuse to help create a short list of the best three to five proposals. Experts also recommend thattechnical criteria should not be weighted more than management or cost criteria. Many organizationssuffer the consequences of paying too much attention to the technical aspects of proposals, whichapplies to IT projects. For example, a project may cost much more than expected or take too long tocomplete because the source selection team focused on only the technical aspects of proposals.However, it is often the seller’s management team—not the technical team—that makes procurementsuccessful.

Exhibit 10-3: Sample proposal evaluation sheet

After developing a short list of possible sellers, organizations often follow a detailed proposalevaluation process. Exhibit 10-4 lists items that might be part of an evaluation of the top threevendors for a large IT project. This list focuses on the project management capabilities of eachvendor. The criteria include the project manager’s educational background and PMP certification, thepresentation that is part of the evaluation process, and the organization’s project managementmethodologies. The project team members and other stakeholders performing the evaluation assignpoints for all criteria to each vendor finalist. In the example in Exhibit 10-4, Vendor 3 scores thehighest (28 out of 30 points) based on the management approach criteria for the award. Similarscores are assigned for the selection criteria. The vendor scoring the maximum points (the total ofpoints awarded on each criterion for all categories) should be offered the award.

Exhibit 10-4: Detailed criteria for selecting vendors

It is customary to negotiate contracts during the source selection process. Selected vendors prepare abest and final offer (BAFO). In addition, senior managers from both the buying and sellingorganizations meet before making final decisions. The final output from the source selection is acontract that obligates the seller to provide the specified products or services and the buyer to pay forthem.

Types of contractsContract type is an important consideration. Different types of contracts might be used by anorganization. The different categories of contracts are:

· Fixed price or lump sum· Cost reimbursable· Time and material· Unit price

Fixed price or lump sum

Fixed price or lump sum contracts involve a fixed total price for a well-defined product or service.The buyer incurs little risk in this situation. For example, a company can award a fixed price contractto purchase 100 laser printers of the desired specifications to be delivered at a location within twomonths. In this example, the product and delivery date are well defined. Fixed price contracts mightalso include incentives for meeting or exceeding selected project objectives. For example, thecontract can include an incentive fee paid if the laser printers are delivered within one month. Afirm-fixed price (FFP) contract poses the minimum risk to the buyer, followed by a fixed priceincentive (FPI) contract.

Cost reimbursable



Cost reimbursable contracts involve payment to the seller for direct and indirect actual costs. Directcosts are costs related to a project that can be traced back in a cost-effective way. Indirect costs arecosts related to the project that cannot be traced back in a cost-effective way. For example, thesalaries of team members working on a project and hardware or software purchased for a specificproject are direct costs, while the cost of providing a workspace constitutes an indirect cost. Indirectcosts are often calculated as a percentage of direct costs. Cost reimbursable contracts often includefees, such as a profit percentage or incentives for meeting or exceeding selected project objectives.These contracts are often used for projects that include providing goods and services involving newtechnologies. The buyer absorbs more risk with cost reimbursable contracts than with fixed pricecontracts. Three types of cost reimbursable contracts, in order of lowest to highest risk to the buyer,include:

· Cost plus incentive fee (CPIF) contract. The buyer pays the seller for allowableperformance costs along with a predetermined fee and an incentive bonus. If the final cost isless than the expected cost, both the buyer and the seller benefit from the cost savings basedon a negotiated share formula. For example, suppose the expected cost of a project is$100,000, the fee to the seller is $10,000, and the share formula is 85/15, which means thatthe buyer absorbs 85 percent of the uncertainty and the seller absorbs 15 percent. If the finalprice is $80,000, the cost savings are $20,000. The seller is paid the final cost and the feeplus an incentive of $3,000 (15 percent of $20,000), for a total reimbursement of $93,000.

· Cost plus fixed fee (CPFF) contract. The buyer pays the seller for allowable performancecosts plus a fixed fee payment, usually based on a percentage of estimated costs. This fee doesnot vary, however, unless the scope of the contract changes. For example, suppose theexpected cost of a project is $100,000, and the fixed fee is $10,000. If the actual cost of thecontract rises to $120,000 but the scope of the contract remains the same, the contractor willreceive the fee of $10,000.

· Cost plus percentage of costs (CPPC) contract. The buyer pays the seller for allowableperformance costs along with a predetermined percentage based on total costs. From thebuyer’s perspective, this is the least desirable type of contract because the seller has noincentive to decrease costs. In fact, the seller might be motivated to increase costs becausethat will automatically increase profits based on the percentage of costs. This type of contractis prohibited for federal government use, but is sometimes used by organizations that are partof the construction industry. All the risk is borne by the buyer.

Time and material

Time and material contracts are a hybrid of both fixed price and cost reimbursable contracts. Forexample, an independent computer consultant might be contracted based on a fee of $80 per hour forthe services and a fixed price of $10,000 for providing specific material for the project. The materialsfee might also be based on approved receipts for purchasing items, with a maximum limit of$10,000. The consultant sends an invoice to the company each week or month, listing the materialsfee, the number of hours worked, and a description of the work produced. This type of contract isoften used for services required when the work cannot be clearly specified and total costs cannot beestimated in a contract. Generally, contract programmers and consultants prefer time and materialcontracts.

Unit price

Unit price contracts require the buyer to pay the supplier a predetermined amount per unit of service,and the total value of the contract is a function of the quantities needed to complete the work. Forexample, an IT department might use a unit price contract for purchasing computer hardware. If thecompany purchases only one unit, the cost might be $1,000. If the company purchases 10 units, thecost will be $10,000. This type of contract often involves volume discounts. For example, if thecompany purchases 10 to 50 units, the contracted cost might be $900 per unit. If the companypurchases more than 50 units, the cost might go down to $800 per unit.

Any type of contract should include specific clauses that take into account issues unique to theproject. For example, if a company uses a unit price contract for consulting services, the contractshould stipulate different hourly rates based on the level of experience of individual contractors. Theservices of a junior programmer with no bachelor’s degree and less than three years’ experiencemight be billed at $40 per hour, but the services of a senior programmer holding a bachelor’s degree



and more than 10 years of experience might be billed at $80 per hour.

Contract types versus risk

Exhibit 10-5 summarizes the spectrum of risks to the buyers and sellers for different types ofcontracts. Buyers face the minimum risks with FFP contracts because they are aware of the paymentto be made to the seller. Buyers face the maximum risks with cost plus percentage of costs contractsbecause they are unaware of the seller’s costs in advance and the sellers might increase costsrandomly. The seller’s face minimum risks with a cost plus percentage of costs contract and themaximum risks with the FFP contract.

Exhibit 10-5: Contract types versus risk

Time and material and unit price contracts can be viewed as high- or low-risk, depending on thenature of the project and other contract clauses. For example, if an organization is unclear on thenature of work to be done, it cannot expect a supplier to sign a FFP contract. However, the buyer canengage a consultant or group of consultants to work on specific tasks based on a predeterminedhourly rate. The buying organization can evaluate the work produced every day or every week todecide if consultants should continue. In this case, the contract includes a termination clause—acontract clause that allows the buyer or supplier to end the contract. Some termination clauses statethat the buyer can terminate a contract for any reason and by serving the supplier only 24 hours’notice. Suppliers must often serve a one-week notice to terminate a contract and must providesufficient reasons for the termination. The buyer can also include a contract clause specifying hourlyrates based on the education and experience of the consultants. These contract clauses reduce the riskincurred by the buyer while providing flexibility for accomplishing the work.

Statement of work

Many contracts include a statement of work (SOW). The SOW is a description of thework required for procurement. The SOW describes the work in detail to allowprospective sellers to determine if they can provide the required goods and services andto determine an appropriate price. A SOW should be clear, concise, and complete. Itmust describe all the required services and include performance reporting. It isimportant to use appropriate words in a SOW such as must instead of may. Forexample, must implies that something is obligatory or necessary; may implies a choicein doing or not doing something. The SOW should specify the product of the project,use industry terms, and refer to industry standards.

Many organizations use samples and templates to generate SOWs. Exhibit 10-6 provides a templatefor a SOW that an organization can use when hiring outside consultants or purchasing goods orservices. For example, for an operating system conversion project, a company should specifyinformation, such as the specific manufacturer and model number for the hardware, the operatingsystems in use and the operating systems required for the conversion, and the number of units of eachtype of hardware involved (mainframes, midrange computers, or PCs). The SOW should also specifythe location of the work, the expected period of performance, specific deliverables and their duedates, standards, acceptance criteria, and special requirements. A comprehensive SOW gives biddersa better understanding of the buyer’s expectations. A SOW can and should become part of theofficial contract to ensure that the buyer gets what the supplier bid on.

Exhibit 10-6: Statement of work (SOW) template

Do it! B-1: Discussing types of contractsExercises

1 Which of the following are the types of contracts used in different situations?

A Cost reimbursable

B Unit price



C Time and material

D Termination clause

2 What is an SOW?

3 What are the three types of cost reimbursable contracts?

4 Identify the contract type if the buyer pays the seller for allowableperformance costs along with a predetermined percentage based on total costs.

5 In your experience, before starting work on a project, have you signed anSOW with the clients? What features did it have?

Contract administrationExplanation Contract administration ensures that the seller’s performance meets contractual

requirements. The contractual relationship is a legal relationship and is subject to stateand federal contract laws. Therefore, appropriate legal and contracting professionalsmust be involved in writing and administering contracts.

It might be possible that project managers have limited knowledge about contract administration.Several project managers and technical professionals might prefer not to be involved in the contractprocess or might face problems due to their lack of understanding about the contracts. Ideally, theproject manager and his or her team should be actively involved in writing and administering thecontract so that everyone understands the importance of good procurement management. The projectteam should also seek expert advice in working with contractual issues.

Project members must be aware of potential legal problems they might cause by not understanding acontract. For example, most projects involve changes for items under contract, and these changesmust be handled properly. If the project manager does not understand the provisions of the contract,it might inadvertently lead to authorizing the contractor to do additional work at additional cost.Change control is essential to the contract administration process. Following are suggestions toensure adequate change control on projects that involve contracts:

IT Project Management

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