Project Management Processes- Activity 11

Project Management Processes- Activity 11

The performance of a project was evaluated 10 weeks after its start. Refer to Table 12.15 on page 579 of your textbook for additional details.

  1. Develop a Gantt Chart based on Table 12.15    
  2. On the same Gantt chart, use a legend to show the project plan and the (actual) project progress. 
  3. Discuss the significance of the two paths or what they mean to the project. 

(You may use any preferred tool such as Excel, MS Project, etc, for the Gantt Chart. If you are unable to specify the exact numbers on your chart due to software restrictions, please indicate that accordingly on your diagram. All verbiage should follow APA formatting guidelines)

Project Management Processes, Methodologies, and Economics

Third Edition

Avraham Shtub

Faculty of Industrial Engineering and Management

The Technion–Israel Institute of Technology

Moshe Rosenwein

Department of Industrial Engineering and Operations Research

Columbia University

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The author and publisher of this book have used their best efforts in preparing this book. These efforts include the development, research, and testing of theories and programs to determine their effectiveness. The author and publisher make no warranty of any kind, expressed or implied, with regard to these programs or the documentation contained in this book. The author and publisher shall not be liable in any event for incidental or consequential damages with, or arising out of, the furnishing, performance, or use of these programs.

Library of Congress Cataloging-in-Publication Data

Names: Shtub, Avraham, author. | Rosenwein, Moshe, author. Title: Project management : processes, methodologies, and economics / Avraham Shtub, Faculty of Industrial Engineering and Management, The Technion-Israel Institute of Technology, Moshe Rosenwein, Department of Industrial Engineering and Operations Research, Columbia University. Other titles: Project management (Boston, Mass.) Description: 3E. | Pearson | Includes bibliographical references and index. Identifiers: LCCN 2016030485 | ISBN 9780134478661 (pbk.) Subjects: LCSH: Engineering—Management. | Project management. Classification: LCC TA190 .S583 2017 | DDC 658.4/04—dc23 LC record available at https://lccn.loc.gov/2016030485

10 9 8 7 6 5 4 3 2 1http://www.pearsoned.com/permissions/https://lccn.loc.gov/2016030485

ISBN-10: 0-13-447866-5

ISBN-13: 978-0-13-447866-1

This book is dedicated to my grandchildren Zoey, Danielle, Adam, and Noam Shtub.

This book is dedicated to my wife, Debbie; my three children, David, Hannah, and Benjamin; my late parents, Zvi and Blanche Rosenwein; and my in-laws, Dr. Herman and Irma Kaplan.

Contents 1. Nomenclature xv

2. Preface xvii

3. What’s New in this Edition xxi

4. About the Authors xxiii

1. 1  Introduction 1

1. 1.1 Nature of Project Management 1

2. 1.2 Relationship Between Projects and Other Production Systems 2

3. 1.3 Characteristics of Projects 4

1. 1.3.1 Definitions and Issues 5

2. 1.3.2 Risk and Uncertainty 7

3. 1.3.3 Phases of a Project 9

4. 1.3.4 Organizing for a Project 11

4. 1.4 Project Manager 14

1. 1.4.1 Basic Functions 15

2. 1.4.2 Characteristics of Effective Project Managers 16

5. 1.5 Components, Concepts, and Terminology 16

6. 1.6 Movement to Project-Based Work 24

7. 1.7 Life Cycle of a Project: Strategic and Tactical Issues 26

8. 1.8 Factors that Affect the Success of a Project 29

9. 1.9 About the book: Purpose and Structure 31

1. Team Project 35

2. Discussion Questions 38

3. Exercises 39

4. Bibliography 41

5. Appendix 1A: Engineering Versus Management 43

6. 1A.1 Nature of Management 43

7. 1A.2 Differences between Engineering and Management 43

8. 1A.3 Transition from Engineer to Manager 45

9. Additional References 45

2. 2  Process Approach to Project Management 47

1. 2.1 Introduction 47

1. 2.1.1 Life-Cycle Models 48

2. 2.1.2 Example of a Project Life Cycle 51

3. 2.1.3 Application of the Waterfall Model for Software Development 51

2. 2.2 Project Management Processes 53

1. 2.2.1  Process Design 53

2. 2.2.2 PMBOK and Processes in the Project Life Cycle 54

3. 2.3 Project Integration Management 54

1. 2.3.1  Accompanying Processes 54

2. 2.3.2  Description 56

4. 2.4 Project Scope Management 60

1. 2.4.1  Accompanying Processes 60

2. 2.4.2  Description 60

5. 2.5 Project Time Management 61

1. 2.5.1  Accompanying Processes 61

2. 2.5.2  Description 62

6. 2.6 Project Cost Management 63

1. 2.6.1  Accompanying Processes 63

2. 2.6.2  Description 64

7. 2.7 Project Quality Management 64

1. 2.7.1  Accompanying Processes 64

2. 2.7.2  Description 65

8. 2.8 Project Human Resource Management 66

1. 2.8.1  Accompanying Processes 66

2. 2.8.2  Description 66

9. 2.9 Project Communications Management 67

1. 2.9.1  Accompanying Processes 67

2. 2.9.2  Description 68

10. 2.10 Project Risk Management 69

1. 2.10.1  Accompanying Processes 69

2. 2.10.2  Description 70

11. 2.11 Project Procurement Management 71

1. 2.11.1  Accompanying Processes 71

2. 2.11.2  Description 72

12. 2.12 Project Stakeholders Management 74

1. 2.12.1  Accompanying Processes 74

2. 2.12.2  Description 75

13. 2.13 The Learning Organization and Continuous Improvement 76

1. 2.13.1  Individual and Organizational Learning 76

2. 2.13.2  Workflow and Process Design as the Basis of Learning 76

1. Team Project 77

2. Discussion Questions 77

3. Exercises 78

4. Bibliography 78

3. 3 Engineering Economic Analysis 81

1. 3.1 Introduction 81

1. 3.1.1 Need for Economic Analysis 82

2. 3.1.2 Time Value of Money 82

3. 3.1.3 Discount Rate, Interest Rate, and Minimum Acceptable Rate of Return 83

2. 3.2 Compound Interest Formulas 84

1. 3.2.1 Present Worth, Future Worth, Uniform Series, and Gradient Series 86

2. 3.2.2 Nominal and Effective Interest Rates 89

3. 3.2.3 Inflation 90

4. 3.2.4 Treatment of Risk 92

3. 3.3 Comparison of Alternatives 92

1. 3.3.1 Defining Investment Alternatives 94

2. 3.3.2 Steps in the Analysis 96

4. 3.4 Equivalent Worth Methods 97

1. 3.4.1 Present Worth Method 97

2. 3.4.2 Annual Worth Method 98

3. 3.4.3 Future Worth Method 99

4. 3.4.4 Discussion of Present Worth, Annual Worth and Future Worth Methods 101

5. 3.4.5 Internal Rate of Return Method 102

6. 3.4.6 Payback Period Method 109

5. 3.5 Sensitivity and Breakeven Analysis 111

6. 3.6 Effect of Tax and Depreciation on Investment Decisions 114

1. 3.6.1 Capital Expansion Decision 116

2. 3.6.2 Replacement Decision 118

3. 3.6.3 Make-or-Buy Decision 123

4. 3.6.4 Lease-or-Buy Decision 124

7. 3.7 Utility Theory 125

1. 3.7.1 Expected Utility Maximization 126

2. 3.7.2 Bernoulli’s Principle 128

3. 3.7.3 Constructing the Utility Function 129

4. 3.7.4 Evaluating Alternatives 133

5. 3.7.5 Characteristics of the Utility Function 135

1. Team Project 137

2. Discussion Questions 141

3. Exercises 142

4. Bibliography 152

4. 4 Life-Cycle Costing 155

1. 4.1 Need for Life-Cycle Cost Analysis 155

2. 4.2 Uncertainties in Life-Cycle Cost Models 158

3. 4.3 Classification of Cost Components 161

4. 4.4 Developing the LCC Model 168

5. 4.5 Using the Life-Cycle Cost Model 175

1. Team Project 176

2. Discussion Questions 176

3. Exercises 177

4. Bibliography 179

5. 5 Portfolio Management—Project Screening and Selection 181

1. 5.1 Components of the Evaluation Process 181

2. 5.2 Dynamics of Project Selection 183

3. 5.3 Checklists and Scoring Models 184

4. 5.4 Benefit-Cost Analysis 187

1. 5.4.1 Step-By-Step Approach 193

2. 5.4.2 Using the Methodology 193

3. 5.4.3 Classes of Benefits and Costs 193

4. 5.4.4 Shortcomings of the Benefit-Cost Methodology 194

5. 5.5 Cost-Effectiveness Analysis 195

6. 5.6 Issues Related to Risk 198

1. 5.6.1 Accepting and Managing Risk 200

2. 5.6.2 Coping with Uncertainty 201

3. 5.6.3 Non-Probabilistic Evaluation Methods when Uncertainty Is Present 202

4. 5.6.4 Risk-Benefit Analysis 207

5. 5.6.5 Limits of Risk Analysis 210

7. 5.7 Decision Trees 210

1. 5.7.1 Decision Tree Steps 217

2. 5.7.2 Basic Principles of Diagramming 218

3. 5.7.3 Use of Statistics to Determine the Value of More Information 219

4. 5.7.4 Discussion and Assessment 222

8. 5.8 Real Options 223

1. 5.8.1 Drivers of Value 223

2. 5.8.2 Relationship to Portfolio Management 224

1. Team Project 225

2. Discussion Questions 228

3. Exercises 229

4. Bibliography 237

5. Appendix 5A: Bayes’ Theorem for Discrete Outcomes 239

6. 6 Multiple-Criteria Methods for Evaluation and Group Decision Making 241

1. 6.1 Introduction 241

2. 6.2 Framework for Evaluation and Selection 242

1. 6.2.1 Objectives and Attributes 242

2. 6.2.2 Aggregating Objectives Into a Value Model 244

3. 6.3 Multiattribute Utility Theory 244

1. 6.3.1 Violations of Multiattribute Utility Theory 249

4. 6.4 Analytic Hierarchy Process 254

1. 6.4.1 Determining Local Priorities 255

2. 6.4.2 Checking for Consistency 260

3. 6.4.3 Determining Global Priorities 261

5. 6.5 Group Decision Making 262

1. 6.5.1  Group Composition 263

2. 6.5.2  Running the Decision-Making Session 264

3. 6.5.3  Implementing the Results 265

4. 6.5.4  Group Decision Support Systems 265

1. Team Project 267

2. Discussion Questions 267

3. Exercises 268

4. Bibliography 271

5. Appendix 6A: Comparison of Multiattribute Utility Theory with the AHP: Case Study 275

6. 6A.1 Introduction and Background 275

7. 6A.2 The Cargo Handling Problem 276

1. 6A.2.1 System Objectives 276

2. 6A.2.2 Possibility of Commercial Procurement 277

3. 6A.2.3 Alternative Approaches 277

8. 6A.3 Analytic Hierarchy Process 279

1. 6A.3.1 Definition of Attributes 280

2. 6A.3.2 Analytic Hierarchy Process Computations 281

3. 6A.3.3 Data Collection and Results for AHP 283

4. 6A.3.4 Discussion of Analytic Hierarchy Process and Results 284

9. 6A.4 Multiattribute Utility Theory 286

1. 6A.4.1 Data Collection and Results for Multiattribute Utility Theory 286

2. 6A.4.2 Discussion of Multiattribute Utility Theory and Results 290

10. 6A.5 Additional Observations 290

11. 6A.6 Conclusions for the Case Study 291

12. References 291

7. 7 Scope and Organizational Structure of a Project 293

1. 7.1 Introduction 293

2. 7.2 Organizational Structures 294

1. 7.2.1 Functional Organization 295

2. 7.2.2 Project Organization 297

3. 7.2.3 Product Organization 298

4. 7.2.4 Customer Organization 298

5. 7.2.5 Territorial Organization 299

6. 7.2.6 The Matrix Organization 299

7. 7.2.7 Criteria for Selecting an Organizational Structure 302

3. 7.3 Organizational Breakdown Structure of Projects 303

1. 7.3.1 Factors in Selecting a Structure 304

2. 7.3.2 The Project Manager 305

3. 7.3.3 Project Office 309

4. 7.4 Project Scope 312

1. 7.4.1 Work Breakdown Structure 313

2. 7.4.2 Work Package Design 320

5. 7.5 Combining the Organizational and Work Breakdown Structures 322

1. 7.5.1 Linear Responsibility Chart 323

6. 7.6 Management of Human Resources 324

1. 7.6.1 Developing and Managing the Team 325

2. 7.6.2 Encouraging Creativity and Innovation 329

3. 7.6.3 Leadership, Authority, and Responsibility 331

4. 7.6.4 Ethical and Legal Aspects of Project Management 334

1. Team Project 335

2. Discussion Questions 336

3. Exercises 336

4. Bibliography 338

8. 8 Management of Product, Process, and Support Design 341

1. 8.1 Design of Products, Services, and Systems 341

1. 8.1.1 Principles of Good Design 342

2. 8.1.2 Management of Technology and Design in Projects 344

2. 8.2 Project Manager’s Role 345

3. 8.3 Importance of Time and the Use of Teams 346

1. 8.3.1 Concurrent Engineering and Time-Based Competition 347

2. 8.3.2 Time Management 349

3. 8.3.3 Guideposts for Success 352

4. 8.3.4 Industrial Experience 354

5. 8.3.5 Unresolved Issues 355

4. 8.4 Supporting Tools 355

1. 8.4.1 Quality Function Deployment 355

2. 8.4.2 Configuration Selection 358

3. 8.4.3 Configuration Management 361

4. 8.4.4 Risk Management 365

5. 8.5 Quality Management 370

1. 8.5.1 Philosophy and Methods 371

2. 8.5.2 Importance of Quality in Design 382

3. 8.5.3 Quality Planning 383

4. 8.5.4 Quality Assurance 383

5. 8.5.5 Quality Control 384

6. 8.5.6 Cost of Quality 385

1. Team Project 387

2. Discussion Questions 388

3. Exercises 389

4. Bibliography 389

9. 9 Project Scheduling 395

1. 9.1 Introduction 395

1. 9.1.1 Key Milestones 398

2. 9.1.2 Network Techniques 399

2. 9.2 Estimating the Duration of Project Activities 401

1. 9.2.1 Stochastic Approach 402

2. 9.2.2 Deterministic Approach 406

3. 9.2.3 Modular Technique 406

4. 9.2.4 Benchmark Job Technique 407

5. 9.2.5 Parametric Technique 407

3. 9.3 Effect of Learning 412

4. 9.4 Precedence Relations Among Activities 414

5. 9.5 Gantt Chart 416

6. 9.6 Activity-On-Arrow Network Approach for CPM Analysis 420

1. 9.6.1 Calculating Event Times and Critical Path 428

2. 9.6.2 Calculating Activity Start and Finish Times 431

3. 9.6.3 Calculating Slacks 432

7. 9.7 Activity-On-Node Network Approach for CPM Analysis 433

1. 9.7.1 Calculating Early Start and Early Finish Times of Activities 434

2. 9.7.2 Calculating Late Start and Late Finish Times of Activities 434

8. 9.8 Precedence Diagramming with Lead–Lag Relationships 436

9. 9.9 Linear Programming Approach for CPM Analysis 442

10. 9.10 Aggregating Activities in the Network 443

1. 9.10.1 Hammock Activities 443

2. 9.10.2 Milestones 444

11. 9.11 Dealing with Uncertainty 445

1. 9.11.1 Simulation Approach 445

2. 9.11.2 Pert and Extensions 447

12. 9.12 Critique of Pert and CPM Assumptions 454

13. 9.13 Critical Chain Process 455

14. 9.14 Scheduling Conflicts 457

1. Team Project 458

2. Discussion Questions 459

3. Exercises 460

4. Bibliography 467

5. Appendix 9A: Least-Squares Regression Analysis 471

6. Appendix 9B: Learning Curve Tables 473

7. Appendix 9C: Normal Distribution Function 476

10. 10 Resource Management 477

1. 10.1 Effect of Resources on Project Planning 477

2. 10.2 Classification of Resources Used in Projects 478

3. 10.3 Resource Leveling Subject to Project Due-Date Constraints 481

4. 10.4 Resource Allocation Subject to Resource Availability Constraints 487

5. 10.5 Priority Rules for Resource Allocation 491

6. 10.6 Critical Chain: Project Management by Constraints 496

7. 10.7 Mathematical Models for Resource Allocation 496

8. 10.8 Projects Performed in Parallel 499

1. Team Project 500

2. Discussion Questions 500

3. Exercises 501

4. Bibliography 506

11. 11 Project Budget 509

1. 11.1 Introduction 509

2. 11.2 Project Budget and Organizational Goals 511

3. 11.3 Preparing the Budget 513

1. 11.3.1 Top-Down Budgeting 514

2. 11.3.2 Bottom-Up Budgeting 514

3. 11.3.3 Iterative Budgeting 515

4. 11.4 Techniques for Managing the Project Budget 516

1. 11.4.1 Slack Management 516

2. 11.4.2 Crashing 520

5. 11.5 Presenting the Budget 527

6. 11.6 Project Execution: Consuming the Budget 529

7. 11.7 The Budgeting Process: Concluding Remarks 530

1. Team Project 531

2. Discussion Questions 531

3. Exercises 532

4. Bibliography 537

5. Appendix 11A: Time–Cost Tradeoff with Excel 539

12. 12 Project Control 545

1. 12.1 Introduction 545

2. 12.2 Common Forms of Project Control 548

3. 12.3 Integrating the OBS and WBS with Cost and Schedule Control 551

1. 12.3.1 Hierarchical Structures 552

2. 12.3.2 Earned Value Approach 556

4. 12.4 Reporting Progress 565

5. 12.5 Updating Cost and Schedule Estimates 566

6. 12.6 Technological Control: Quality and Configuration 569

7. 12.7 Line of Balance 569

8. 12.8 Overhead Control 574

1. Team Project 576

2. Discussion Questions 577

3. Exercises 577

4. Bibliography 580

13. Appendix 12A: Example of a Work Breakdown Structure 581

14. Appendix 12B:  Department of Energy Cost/Schedule Control Systems Criteria 583

15. 13 Research and Development Projects 587

1. 13.1 Introduction 587

2. 13.2 New Product Development 589

1. 13.2.1 Evaluation and Assessment of Innovations 589

2. 13.2.2 Changing Expectations 593

3. 13.2.3 Technology Leapfrogging 593

4. 13.2.4 Standards 594

5. 13.2.5 Cost and Time Overruns 595

3. 13.3 Managing Technology 595

1. 13.3.1 Classification of Technologies 596

2. 13.3.2 Exploiting Mature Technologies 597

3. 13.3.3 Relationship Between Technology and Projects 598

4. 13.4 Strategic R&D Planning 600

1. 13.4.1 Role of R&D Manager 600

2. 13.4.2 Planning Team 601

5. 13.5 Parallel Funding: Dealing with Uncertainty 603

1. 13.5.1 Categorizing Strategies 604

2. 13.5.2 Analytic Framework 605

3. 13.5.3 Q-Gert 606

6. 13.6 Managing the R&D Portfolio 607

1. 13.6.1 Evaluating an Ongoing Project 609

2. 13.6.2 Analytic Methodology 612

1. Team Project 617

2. Discussion Questions 618

3. Exercises 619

4. Bibliography 619

5. Appendix 13A: Portfolio Management Case Study 622

16. 14 Computer Support for Project Management 627

1. 14.1 Introduction 627

2. 14.2 Use of Computers in Project Management 628

1. 14.2.1 Supporting the Project Management Process Approach 629

2. 14.2.2 Tools and Techniques for Project Management 629

3. 14.3 Criteria for Software Selection 643

4. 14.4 Software Selection Process 648

5. 14.5 Software Implementation 650

6. 14.6 Project Management Software Vendors 656

1. Team Project 657

2. Discussion Questions 657

3. Exercises 658

4. Bibliography 659

5. Appendix 14A: PMI Software Evaluation Checklist 660

6. 14A.1 Category 1: Suites 660

7. 14A.2 Category 2: Process Management 660

8. 14A.3 Category 3: Schedule Management 661

9. 14A.4 Category 4: Cost Management 661

10. 14A.5 Category 5: Resource Management 661

11. 14A.6 Category 6: Communications Management 661

12. 14A.7 Category 7: Risk Management 662

13. 14A.8 General (Common) Criteria 662

14. 14A.9 Category-Specific Criteria Category 1: Suites 663

15. 14A.10 Category 2: Process Management 663

16. 14A.11 Category 3: Schedule Management 664

17. 14A.12 Category 4: Cost Management 665

18. 14A.13 Category 5: Resource Management 666

19. 14A.14 Category 6: Communications Management 666

20. 14A.15 Category 7: Risk Management 668

17. 15 Project Termination 671

1. 15.1 Introduction 671

2. 15.2 When to Terminate a Project 672

3. 15.3 Planning for Project Termination 677

4. 15.4 Implementing Project Termination 681

5. 15.5 Final Report 682

1. Team Project 683

2. Discussion Questions 683

3. Exercises 684

4. Bibliography 685

18. 16 New Frontiers in Teaching Project Management in MBA and Engineering Programs 687

1. 16.1 Introduction 687

2. 16.2 Motivation for Simulation-Based Training 687

3. 16.3 Specific Example—The Project Team Builder (PTB) 691

4. 16.4 The Global Network for Advanced Management (GNAM) MBA New Product Development (NPD) Course 692

5. 16.5 Project Management for Engineers at Columbia University 693

6. 16.6 Experiments and Results 694

7. 16.7 The Use of Simulation-Based Training for Teaching Project Management in Europe 695

8. 16.8 Summary 696

1. Bibliography 697

1. Index 699

Nomenclature AC annual cost

ACWP actual cost of work performed

AHP analytic hierarchy process

AOA activity on arrow

AON activity on node

AW annual worth

BAC budget at completion

B/C benefit/cost

BCWP budgeted cost of work performed

BCWS budgeted cost of work scheduled

CBS cost breakdown structure

CCB change control board

CCBM critical chain buffer management

CDR critical design review

CE certainty equivalent, concurrent engineering

C-E cost-effectiveness

CER cost estimating relationship

CI cost index; consistency index;

criticality index

CM configuration management

COO chief operating officer

CPIF cost plus incentive fee

CPM critical path method

CR capital recovery, consistency ratio

C/SCSC cost/schedule control systems criteria

CV cost variance

DOD Department of Defense

DOE Department of Energy

DOH direct overhead costs

DSS decision support system

EAC estimate at completion

ECO engineering change order

ECR engineering change request

EMV expected monetary value

EOM end of month

EOY end of year

ERP enterprise resource planning

ETC estimate to complete

ETMS early termination monitoring system

EUAC equivalent uniform annual cost

EV earned value

EVPI expected value of perfect information

EVSI expected value of sample information

FFP firm fixed price

FMS flexible manufacturing system

FPIF fixed price incentive fee

FW future worth

GAO General Accounting Office

GDSS group decision support system

GERT graphical evaluation and review technique

HR human resources

IPT integraded product team

IRR internal rate of return

IRS Internal Revenue Service

ISO International Standards Organization

IT information technology

LCC life-cycle cost

LOB line of balance

LOE level of effort

LP linear program

LRC linear responsibility chart

MACRS modified accelerated cost recovery system

MARR minimum acceptable (attractive) rate of return

MAUT multiattribute utility theory

MBO management by objectives

MIS management information system

MIT Massachusetts Institute of Technology

MPS master production schedule

MTBF mean time between failures

MTTR mean time to repair

NAC net annual cost

NASA National Aeronautics and Space Administration

NBC nuclear, biological, chemical

NPV net present value

OBS organizational breakdown structure

O&M operations and maintenance

PDMS product data management system

PDR preliminary design review

PERT program evaluation and review technique

PMBOK project management body of knowledge

PMI Project Management Institute

PMP project management professional

PO project office

PT project team

PV planned value

PW present worth

QA quality assurance

QFD quality function deployment

RAM reliability, availability, and maintainability; random access memory

R&D research and development

RDT&E research, development, testing, and evaluation

RFP request for proposal

ROR rate of return

SI schedule index

SOW statement of work

SOYD sum-of-the-years digits

SV schedule variance

TQM total quality management

WBS work breakdown structure

WP work package

WR work remaining

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

The quality revolution in manufacturing has brought this point home. Companies in all areas of technology have come to learn that quality cannot be inspected into a product; it must be built in. Recalling the 1980s, the global competitive battles of that time were won by companies that could achieve cost and quality advantages in existing, well-defined markets. In the 1990s, these battles were won by companies that could build and dominate new markets. Today, the emphasis is partnering and better coordination of the supply chain. Planning is a critical component of this process and is the foundation of project management.

Projects may involve dozens of firms and hundreds of people who need to be managed and coordinated. They need to know what has to be done, who is to do it, when it should be done, how it will be done, and what resources will be used. Proper planning is the first step in communicating these intentions. The problem is made difficult by what can be characterized as an atmosphere of uncertainty, chaos, and conflicting goals. To ensure teamwork, all major participants and stakeholders should be involved at each stage of the process.

How is this achieved efficiently, within budget, and on schedule? The primary objective in writing our first book was to answer this question from

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

Over the years, numerous books have been written with similar objectives in mind. We acknowledge their contribution and have endeavored to build on their strengths. As such in the third edition of the book, we have focused on integrative concepts rather than isolated methodologies. We have relied on simple models to convey ideas and have intentionally avoided detailed mathematical formulations and solution algorithms––aspects of the field better left to other parts of the curriculum. Nevertheless, we do present some models of a more technical nature and provide references for readers who wish to gain a deeper understanding of their use. The availability of powerful, commercial codes brings model solutions within reach of the project team.

To ensure that project participants work toward the same end and hold the same expectations, short- and long-term goals must be identified and communicated continually. The project plan is the vehicle by which this is accomplished and, once approved, becomes the basis for monitoring, controlling, and evaluating progress at each phase of the project’s life cycle. To help the project manager in this effort, various software packages have been developed; the most common run interactively on microcomputers and have full functional and report-generating capabilities. In our experience, even the most timid users are able to take advantage of their main features after only a few hours of hands-on instruction.

A second objective in writing this book has been to fill a void between texts aimed at low- to mid-level managers and those aimed at technical personnel with strong analytic skills but little training in or exposure to organizational issues. Those who teach engineering or business students at both the late undergraduate and early graduate levels should find it suitable. In addition, the book is intended to serve as a reference for the practitioner who is new to the field or who would like to gain a surer footing in project management concepts and techniques.

The core material, including most of the underlying theory, can be covered in a one-semester course. At the end of Chapter 1, we outline the book’s contents. Chapter 3 deals with economic issues, such as cash flow, time value of money, and depreciation, as they relate to projects. With this material and some supplementary notes, coupled with the evaluation methods and multiple criteria decision-making techniques discussed in Chapters 5 and 6, respectively, it should be possible to teach a combined course in project management and engineering economy. This is the direction in which many undergraduate engineering programs are now headed after many years of industry prodding. Young engineers are often thrust into leadership roles without adequate preparation or training in project management skills.

Among the enhancements in the Third Edition is a section on Lean project management, discussed in Chapter 8, and a new Chapter 16 on simulation- based training for project management.

Lean project management is a Quality Management initiative that focuses on maximizing the value that a project generates for its stakeholders while minimizing waste. Lean project management is based on the Toyota production system philosophy originally developed for a repetitive environment and modified to a nonrepetitive environment to support project managers and project teams in launching, planning, executing, and terminating projects. Lean project management is all about people—selecting the right project team members, teaching them the art and science of project management, and developing a highly motivated team that works together to achieve project goals.

Simulation-based training is a great tool for training project team members and for team development. Chapter 16 discusses the principles of simulation-

based training and its application to project management. The chapter reports on the authors’ experience in using simulation-based training in leading business schools, such as members of the Global Network for Advanced Management (GNAM), and in leading engineering schools, such as the Columbia University School of Engineering and the Technion. The authors also incorporated feedback received from European universities such as Technische Universität München (TUM) School of Management and Katholieke Universiteit Leuven that used the Project Team Builder (PTB) simulation-based training environment. Adopters of this book are encouraged to try the PTB—it is available from http://www.sandboxmodel.com/—and to integrate it into their courses.

Writing a textbook is a collaborative effort involving many people whose names do not always appear on the cover. In particular, we thank all faculty who adopted the first and second editions of the book and provided us with their constructive and informative comments over the years. With regard to production, much appreciation goes to Lillian Bluestein for her thorough job in proofreading and editing the manuscript. We would also like to thank Chen Gretz-Shmueli for her contribution to the discussion in the human resources section. Finally, we are forever grateful to the phalanx of students who have studied project management at our universities and who have made the painstaking efforts of gathering and writing new material all worthwhile.

Avraham Shtub

Moshe Rosenweinhttp://www.sandboxmodel.com/

What’s New in this Edition The purpose of the new, third edition of this book is to update developments in the project management field over the last 10 years and to more broadly address some of the concerns that have increased in prominence in the minds of practitioners. We incorporated new material in many of the chapters specifically related to the Project Management Body of Knowledge (PMBOK) published by the Project Management Institute. This material reflects the tools, techniques, and processes that have gained widespread acceptance by the profession because of their proven value and usefulness.

Noteworthy enhancements in the third edition include:

An expanded section regarding Lean project management in Chapter 8;

A new chapter, Chapter 16, discussing the use of simulation and the Project Team Builder software;

A detailed discussion on activity splitting and its advantages and disadvantages in project management;

Descriptions, with examples, of resource-scheduling heuristics such as the longest-duration first heuristic and the Activity Time (ACTIM) algorithm;

Examples that demonstrate the use of Excel Solver to model project management problems such as the time–cost tradeoff;

A description of project management courses at Columbia University and the Global Network of Advanced Management.

About the Authors Professor Avraham Shtub holds the Stephen and Sharon Seiden Chair in Project Management. He has a B.Sc. in Electrical Engineering from the Technion–Israel Institute of Technology (1974), an MBA from Tel Aviv University (1978), and a Ph.D. in Management Science and Industrial Engineering from the University of Washington (1982).

He is a certified Project Management Professional (PMP) and a member of the Project Management Institute (PMI-USA). He is the recipient of the Institute of Industrial Engineering 1995 Book of the Year Award for his book Project Management: Engineering, Technology, and Implementation (coauthored with Jonathan Bard and Shlomo Globerson), Prentice Hall, 1994. He is the recipient of the Production Operations Management Society Wick Skinner Teaching Innovation Achievements Award for his book Enterprise Resource Planning (ERP): The Dynamics of Operations Management. His books on Project Management were published in English, Hebrew, Greek, and Chinese.

He is the recipient of the 2008 Project Management Institute Professional Development Product of the Year Award for the training simulator “Project Team Builder – PTB.”

Professor Shtub was a Department Editor for IIE Transactions, he was on the Editorial Boards of the Project Management Journal, The International Journal of Project Management, IIE Transactions, and the International Journal of Production Research. He was a faculty member of the department of Industrial Engineering at Tel Aviv University from 1984 to 1998, where he also served as a chairman of the department (1993–1996). He joined the Technion in 1998 and was the Associate Dean and head of the MBA program.

He has been a consultant to industry in the areas of project management, training by simulators, and the design of production—operation systems. He was invited to speak at special seminars on Project Management and

Operations in Europe, the Far East, North America, South America, and Australia.

Professor Shtub visited and taught at Vanderbilt University, The University of Pennsylvania, Korean Institute of Technology, Bilkent University in Turkey, Otego University in New Zealand, Yale University, Universitat Politécnica de Valencia, and the University of Bergamo in Italy.

Dr. Moshe Rosenwein has a B.S.E. from Princeton University and a Ph.D. in Decision Sciences from the University of Pennsylvania. He has worked in the industry throughout his professional career, applying management science modeling and methodologies to business problems in supply chain optimization, network design, customer relationship management, and scheduling. He has served as an adjunct professor at Columbia University on multiple occasions over the past 20 years and developed a project management course for the School of Engineering that has been taught since 2009. He has also taught at Seton Hall University and Rutgers University. Dr. Rosenwein has published over 20 refereed papers and has delivered numerous talks at universities and conferences. In 2001, he led an industry team that was awarded a semi-finalist in the Franz Edelman competition for the practice of management science.

Chapter 1 Introduction

1.1 Nature of Project Management Many of the most difficult engineering and business challenges of recent decades have been to design, develop, and implement new systems of a type and complexity never before attempted. Examples include the construction of oil drilling platforms in the North Sea off the coast of Great Britain, the development of the manned space program in both the United States and the former Soviet Union, and the worldwide installation of fiber optic lines for broadband telecommunications. The creation of these systems with performance capabilities not previously available and within acceptable schedules and budgets has required the development of new methods of planning, organizing, and controlling events. This is the essence of project management.

A project is an organized endeavor aimed at accomplishing a specific nonroutine or low-volume task. Although projects are not repetitive, they may take significant amounts of time and, for our purposes, are sufficiently large or complex to be recognized and managed as separate undertakings. Teams have emerged as the way of supplying the needed talents. The use of teams complicates the flow of information and places additional burdens on management to communicate with and coordinate the activities of the participants.

The amount of time in which an individual or an organizational unit is involved in a project may vary considerably. Someone in operations may work only with other operations personnel on a project or may work with a team composed of specialists from various functional areas to study and solve a specific problem or to perform a secondary task.

Management of a project differs in several ways from management of a typical organization. The objective of a project team is to accomplish its prescribed mission and disband. Few firms are in business to perform just one

job and then disappear. Because a project is intended to have a finite life, employees are seldom hired with the intent of building a career with the project. Instead, a team is pulled together on an ad-hoc basis from among people who normally have assignments in other parts of the organization. They may be asked to work full time on the project until its completion; or they may be asked to work only part time, such as two days a week, on the project and spend the rest of the time at their usual assignments. A project may involve a short-term task that lasts only a matter of days, or it may run for years. After completion, the team normally disperses and its members return to their original jobs.

The need to manage large, complex projects, constrained by tight schedules and budgets, motivated the development of methodologies different from those used to manage a typical enterprise. The increasingly complex task of managing large-scale, enterprise-wide projects has led to the rise in importance of the project management function and the role of the project manager or project management office. Project management is increasingly viewed in both industry and government as a critical role on a project team and has led to the development of project management as a profession (much like finance, marketing, or information technology, for example). The Project Management Institute (PMI), a nonprofit organization, is in the forefront of developing project management methodologies and of providing educational services in the form of workshops, training, and professional literature.

1.2 Relationship Between Projects and Other Production Systems Operations and production management contains three major classes of systems: (1) those designed for mass production, (2) those designed for batch (or lot) production, and (3) those designed for undertaking nonrepetitive projects common to construction and new product development. Each of these classes may be found in both the manufacturing and service sectors.

Mass production systems are typically designed around the specific processes used to assemble a product or perform a service. Their orientation is fixed and their applications are limited. Resources and facilities are composed of special-purpose equipment designed to perform the operations required by the product or the service in an efficient way. By laying out the equipment to parallel the natural routings, material handling and information processing are greatly simplified. Frequently, material handling is automated and the use of conveyors and monorails is extensive. The resulting system is capital intensive and very efficient in the processing of large quantities of specific products or services for which relatively little management and control are necessary. However, these systems are very difficult to alter should a need arise to produce new or modified products or to provide new services. As a result, they are most appropriate for operations that experience a high rate of demand (e.g., several hundred thousand units annually) as well as high aggregate demand (e.g., several million units throughout the life cycle of the system).

Batch-oriented systems are used when several products or services are processed in the same facility. When the demand rate is not high enough or when long-run expectations do not justify the investment in special-purpose equipment, an effort is made to design a more flexible system on which a variety of products or services can be processed. Because the resources used in such systems have to be adjusted (set up) when production switches from one product to another, jobs are typically scheduled in batches to save setup time. Flexibility is achieved by using general-purpose resources that can be

adjusted to handle different processes. The complexity of operations planning, scheduling, and control is greater than in mass production systems as each product has its own routing (sequence of operations). To simplify planning, resources are frequently grouped together based on the type of processes that they perform. Thus, batch-oriented systems contain organizational units that specialize in a function or a process, as opposed to product lines that are found in mass production systems. Departments such as metal cutting, painting, testing, and packaging/shipping are typical examples from the batch-oriented manufacturing sector, whereas word processing centers and diagnostic laboratories are examples from the service sector.

In the batch-oriented system, it is particularly important to pay attention to material handling needs because each product has its specific set of operations and routings. Material handling equipment, such as forklifts, is used to move in-process inventory between departments and work centers. The flexibility of batch-oriented systems makes them attractive for many organizations.

In recent years, flexible manufacturing systems have been quick to gain acceptance in some industrial settings. With the help of microelectronics and computer technology, these systems are designed to achieve mass production efficiencies in low-demand environments. They work by reducing setup times and automating material handling operations but are extremely capital intensive. Hence they cannot always be justified when product demand is low or when labor costs are minimal. Another approach is to take advantage of local economies of scale. Group technology cells, which are based on clustering similar products or components into families processed by dedicated resources of the facility, are one way to implement this approach. Higher utilization rates and greater throughput can be achieved by processing similar components on dedicated machines.

By way of contrast, systems that are subject to very low demand (no more than a few units) are substantially different from the first two mentioned. Because of the nonrepetitive nature of these systems, past experience may be of limited value so little learning takes place. In this environment, extensive management effort is required to plan, monitor, and control the activities of the organization. Project management is a direct outgrowth of these efforts.

It is possible to classify organizations based on their production orientation as a function of volume and batch size. This is illustrated in Figure 1.1.

Figure 1.1 Classification of production systems.

Figure 1.1 Full Alternative Text

The borderlines between mass production, batch-oriented, and project- oriented systems are hard to define. In some organizations where the project approach has been adopted, several units of the same product (a batch) are produced, whereas other organizations use a batch-oriented system that produces small lots (the just-in-time approach) of very large volumes of products. To better understand the transition between the three types of systems, consider an electronics firm that assembles printed circuit boards in small batches in a job shop. As demand for the boards picks up, a decision is made to develop a flow line for assembly. The design and implementation of this new line is a project.

1.3 Characteristics of Projects Although the Manhattan project—the development of the first atomic bomb —is considered by many to be the first instance when modern project management techniques were used, ancient history is replete with examples. Some of the better known ones include the construction of the Egyptian pyramids, the conquest of the Persian Empire by Alexander the Great, and the building of the Temple in Jerusalem. In the 1960s, formal project management methods received their greatest impetus with the Apollo program and a cluster of large, formidable construction projects.

Today, activities such as the transport of American forces in Operations in Iraq and Afghanistan, the pursuit of new treatments for AIDS and Ebola, and the development of the joint U.S.–Russian space station and the manned space mission to Mars are examples of three projects with which most of us are familiar. Additional examples of a more routine nature include:

Selecting a software package

Developing a new office plan or layout

Implementing a new decision support system

Introducing a new product to the market

Designing an airplane, supercomputer, or work center

Opening a new store

Constructing a bridge, dam, highway, or building

Relocating an office or a factory

Performing major maintenance or repair

Starting up a new manufacturing or service facility

Producing and directing a movie

1.3.1 Definitions and Issues As the list above suggests, a project may be viewed or defined in several different ways: for example, as “the entire process required to produce a new product, new plant, new system, or other specified results” (Archibald 2003) or as “a narrowly defined activity which is planned for a finite duration with a specific goal to be achieved” (General Electric Corporation 1983). Generally speaking, project management occurs when emphasis and special attention are given to the performance of nonrepetitive activities for the purpose of meeting a single set of goals, typically under a set of constraints such as time and budget constraints.

By implication, project management deals with a one-time effort to achieve a focused objective. How progress and outcomes are measured, though, depends on a number of critical factors. Typical among these are technology (specifications, performance, quality), time (due dates, milestones), and cost (total investment, required cash flow), as well as profits, resource utilization, market share, and market acceptance.

These factors and their relative importance are major issues in project management. These factors are based on the needs and expectations of the stakeholders. Stakeholders are individuals and parties interested in the problem the project is designed to solve or in the solution selected. With a well-defined set of goals, it is possible to develop appropriate performance measures and to select the right technology, the organizational structure, required resources, and people who will team up to achieve these goals. Figure 1.2 summarizes the underlying processes. As illustrated, most projects are initiated by a need. A new need may be identified by stakeholders such as a customer, the marketing department, or any member of an organization. When management is convinced that the need is genuine, goals may be defined, and the first steps may be taken toward putting together a project team. Most projects have several goals covering such aspects as technical and operational requirements, delivery dates, and cost. A set of potential projects to undertake should be ranked by stakeholders based on the relative

importance of the goals and the perceived probability of each potential project to achieve each of the individual goals.

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