Project Management

Professor Alexander Roberts PhD, MBA, FCCA, FCIS, MCIBS. Director, Centre for Strategy Development and Implementation Professor Roberts is Professorial Fellow of Edinburgh Business School (EBS), the Graduate School of Business at Heriot-Watt University. Professor Roberts lectures, researches and consults for major organisations on strategy development and implementation. The practical relevance of his work is underpinned by 15 years in senior management, including 10 years at executive director level within multinational subsidiaries of American and European based businesses. He gained his PhD at London Business School in 1997. He has extensive executive and postgraduate management development experience. Professor Roberts founded and leads the new Centre for Strategy Development and Implementation (CSDI) at Edinburgh Business School. The centre provides executive courses, research and consulting services to assist organisations develop appropriate strategic directions and put them into action effectively. Professor Roberts also founded and heads the Doctorate in Business Administration (DBA) in Strategic Focus programme. Professor Roberts is an executive director of EBS. He is also chairman of the EBS CSDI DBA research committee, steering group and various specific course development steering committees. He is also author of the forthcoming MBA/DBA distance learning text in Making Strategies Work and is joint author of the texts in Project Management, Strategic Risk Management and Mergers and Acquisitions. Dr William Wallace BSc (Hons), MSc, PhD, MCIOB, MAPM. Senior Teaching Fellow, Centre for Strategy Development and Implementation. Dr Wallace is Senior Teaching Fellow of Edinburgh Business School (EBS), the Graduate School of Business at Heriot-Watt University. Dr Wallace chairs the MBA/DBA courses in Project Management and Strategic Risk Management and assists Professor Roberts in the development of the EBS CSDI and EBS CSDI DBA programme. Dr Wallace has an extensive range of academic and industrial experience. The work for both his first degree and masters degree (Loughborough 1983) established a broad project management academic framework. He subsequently developed and refined this framework through research as a Heriot-Watt scholarship doctoral student. This research led to the award of his PhD in design project management (Heriot-Watt 1987). Dr Wallace subsequently worked as a professional project manager with private and public sector employers before returning to academia in 1995, where he led the HeriotWatt MSc in Construction Project Management programme from 1995 until 2001. Dr Wallace served as a member of the Heriot-Watt Faculty Board of Engineering from 1997 to 2001 and on the University External Studies Committee 1998 to 2001. With Professor Roberts and others, Dr Wallace is joint author of the EBS texts in Project Management, Strategic Risk Management, and Mergers and Acquisitions.

Release PR-A1.2.1

ISBN 0 273 66140 X

HERIOT-WATT UNIVERSITY

Project Management
Professor Alexander Roberts Dr William Wallace

Edinburgh Gate, Harlow, Essex CM20 2JE, United Kingdom Tel: +44 (0) 1279 623 623 Fax: +44 (0) 1279 431 059 Pearson Education website: A Pearson company www.pearsoned.co.uk

Release PR-A1.2.1 First published in Great Britain in 2002 c Roberts, Wallace 2002, 2003, 2004 The right of Professor Alexander Roberts and Dr William Wallace to be identified as Authors of this Work has been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. ISBN 0 273 66140 X British Library Cataloguing in Publication Data A CIP catalogue record for this book can be obtained from the British Library. All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of the Publishers. This book may not be lent, resold, hired out or otherwise disposed of by way of trade in any form of binding or cover other than that in which it is published, without the prior consent of the Publishers. Typesetting and SGML/XML source management by CAPDM Ltd. Printed and bound in Great Britain. (www.capdm.com)

The publisher’s policy is to use paper manufactured from sustainable forests.

Contents
Preface List of Abbreviations 7 9 1/1 1/2 1/8 1/16 1/23 1/25 1/27 2/1 2/2 2/4 2/30 2/36 2/46 2/53 2/58 2/63 2/68 3/1 3/2 3/3 3/11 3/19 3/25 3/33 3/55 4/1 4/2 4/5 4/50 4/56 5/1 5/2 5/10 5/60 5/72 5/85 5/95

Module 1

Introduction
1.1 1.2 1.3 1.4 1.5 1.6 What Is a Project? What Is Project Management? Characteristics of Project Management Potential Benefits and Challenges of Project Management The History of Project Management Project Management Today

Module 2

Individual and Team Issues
2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 Introduction The Project Manager The Project Team Project Team Staffing Profile and Operation Project Team Evolution Project Team Motivation Project Team Communications Project Team Stress Conflict Identification and Resolution

Module 3

Project Risk Management
3.1 3.2 3.3 3.4 3.5 3.6 3.7 Introduction Background to Risk Risk Handling Types of Risk Risk Conditions and Decision making The Concept of Risk Management Risk, Contracts and Procurement

Module 4

Project Management Organisational Structures and Standards
4.1 4.2 4.3 4.4 Introduction Organisational Theory and Structures Examples of Organisational Structures Project Management Standards

Module 5

Project Time Planning and Control
5.1 5.2 5.3 5.4 5.5 5.6 The Concept of Project Time Planning and Control The Process of Project Time Planning Project Replanning Trade-off Analysis Resource Scheduling Project Planning Software

Project Management

Edinburgh Business School

5

Contents

Module 6

Project Cost Planning and Control
6.1 6.2 6.3 Introduction Project Cost Planning and Control Systems The Project Cost Control System

6/1 6/1 6/2 6/27 7/1 7/2 7/3 7/20 7/36 7/61 7/70 7/80 8/1 8/1 8/2 8/10 8/17 8/22 8/27 8/30 8/33 8/41 8/52 A1/1 A2/1

Module 7

Project Quality Management
7.1 7.2 7.3 7.4 7.5 7.6 7.7 Introduction Quality Management as a Concept The Quality Gurus The Quality Management ‘Six Pack’ Total Quality Management Configuration Management Concurrent Engineering and Time-Based Competition

Module 8

Case Study
8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 8.9 8.10 Aims and Objectives of the Case Study Introduction (Module 1) Individual and Team Issues (Module 2) Risk Management (Module 3) Case Study First Supplement Organisational Structures (Module 4) Case Study Second Supplement Time Planning and Control (Module 5) Cost Planning and Control (Module 6) Quality Management (Module 7)

Appendix 1 Appendix 2

Answers to Review Questions Practice Final Examinations

6

Edinburgh Business School

Project Management

Preface
Project management has come a long way from its origins in engineering and construction. It is now used for a wide range of applications and is one of the most highly valued management tools. A review of job advertisements in the press reveals that project managers are amongst the most highly paid. By the end of this Preface you will gain some idea of why they should be so highly valued. In a world of rapid change, organisations that can identify the need for change, design the changes needed, and implement these more effectively and efficiently than others are more likely to survive and prosper. Those that cannot do this are likely to perish. The Centre for Strategy Development and Implementation (CSDI) at Edinburgh Business School, Heriot-Watt University, came into being to address these issues. The core of the Centre’s work lies in four interrelated areas as shown in The Strategic Focus WheelTM .

Strategic Planning

Strategic Risk Management

Strategy Focus Wheel ™

Making Strategies Work

Project Management of Change

The Strategic Focus WheelTM
TM A. Roberts and A. MacLennon 2002

The wheel is used to focus the efforts and resources of organisations on delivering their intended strategic objectives and has four core elements. • Strategic Planning concerns identifying the options available to an organisation and selecting the most appropriate. If strategic planning is done poorly, then even the best implementation capability is unlikely to compensate for this. Making Strategies Work is a process for connecting the high-level strategic plan to the day-to-day activities that are critical to its delivery.
Edinburgh Business School

Project Management

7

Preface

Project Management of Change ensures completeness and control over physical realisation of the chosen strategy. Project management is the subject of this text. Strategic Risk Management (SRM) identifies, monitors and manages the risk profile of the organisation. Major changes in this profile can result in the need to revise or change the elements above and, in particular, to devise new strategic plans. Alternatively, the changes may be due to the implementation of a new strategy. SRM covers three areas: strategic risk, the possibility of ending up in a position that was not intended, or of ending up in the position that was intended but that is no longer a desirable position because the strategy should have been changed; change risk, dealing with the risks associated with projects required to change the organisation in pursuit of a new strategic thrust (where project management is one tool for managing such risks); and, last but not least, operational risk, covering the risks inherent in the day-to-day operation of the organisation.

We chose project management as the key tool for managing change and associated risks because of its proven usefulness in a vast range of change situations. This is equally true whether designing and erecting a new building (changing materials, labour and other resources into a finished building), designing and implementing new systems (such as human resource management or financial systems), or designing and implementing a new strategy for a whole organisation. However, project management can do more than just act as a stage in the strategic focus cycle. It can also be used as a tool for managing each of the individual stages. In practice, the strategic planning process can itself be run as a project. The process can be broken down into a series of elements or work packages that must be completed. For example, internal and external environmental analysis might form two work packages. In total, the packages form what is called a work breakdown structure, i.e. an ordered description of the work that must be done. Responsibilities are then assigned to the people who will carry out the work on each package, and the relevant working relationships between the people are established. This is the function of an organisational breakdown structure. The execution of the elements will need to be sequenced because some elements will depend on others being completed first. This is the function of scheduling, and PERT and Gantt charts become critical. Other elements in the process can also be covered by project management techniques. These techniques can be similarly applied to making strategies work and strategic risk management. Project management has come a long way from its origins in engineering and construction. It has become indispensable. Project managers now work in all industries and in all functions within organisations. For example, some of the most highly paid project managers now work in IT-related work in financial services, a long way from project management’s building and construction origins.

8

Edinburgh Business School

Project Management

List of Abbreviations

ABC ACWP ADR AGAP ANSI APM ATWP BAC BC BCWP BCWS CAC CAD CAVN CCRB CCTA CD CDES CFM CMS CPM CSAR CSDI CCS CV CVI DAM DBA DMS EAC ECTC EEC EET EFT EMV ERE ERP EST ETC EVA
Project Management

activity-based costing actual cost of the works performed alternative dispute resolution all goes according to plan American National Standards Institute Association for Project Management actual time for work performed budget at completion budgeted cost budgeted cost of the works performed budgeted cost of the works specified or scheduled cost accounting code computer-assisted design cost account variation notice change control and review board Central Computer Telecommunications Agency compact disc computerised database estimating system cross-functional management configuration management system critical path method configuration status accounting and reporting Centre for Strategy Development and Implementation change control section cost variance cost variance index daily application management Doctorate in Business Administration draft master schedule estimate at completion estimated cost to complete estimated effect at completion earliest event time earliest finish time expected monetary value effective risk exploitation enterprise resource planning earliest start time estimate to complete earned value analysis
9

Edinburgh Business School

List of Abbreviations

GERT HSE IBS ILS IMCS IMS IPMA ISO IT JCT JIT LAI LCC LET MBR MFR MRP NPZ OBS PC PCCS PCS PERT PLE PMI PMS POER PRINCE2 PSR PVAR PWO QAP QAR QBS QSR RFD RICS SLA SMM SOW SPP SSR STWP SV

graphical evaluation and review technique Health and Safety Executive information breakdown structure integrated logistics support implementation monitoring and control system interface management system International Project Management Association International Organisation for Standardisation information technology Joint Contracts Tribunal just-in-time local authority inspector life cycle costing latest event time market business risk market financial risk material requirements planning no-problem zone organisational breakdown structure personal computer project cost and control system project central server program evaluation and review technique project logic evaluation Project Management Institute project master schedule post-occupancy evaluation and review PRoject management IN a Controlled Environment, version 2 programme status report project variance analysis reporting project works order quality assurance plan quality assurance review quality breakdown structure quality status report resource fluctuation driver Royal Institute of Chartered Surveyors service-level agreement standard method of measurement statement of work strategic project plan safety status report scheduled time for work performed schedule variance

10

Edinburgh Business School

Project Management

List of Abbreviations

SVI SWOT TBC TDS TOC TQM TRM TSRM VAC VO WBS WHIF WP WS

schedule variance index strengths, weaknesses, opportunities and threats time-based competition top-down strategy train operating company total quality management task responsibility matrix total strategic risk management variance at completion variation order work breakdown structure what if works performed works scheduled

Project Management

Edinburgh Business School

11

Module 1

Introduction
Contents
1.1 1.1.1 1.1.2 1.1.3 1.2 1.2.1 1.2.2 1.2.3 1.3 1.3.1 1.3.2 1.3.3 1.3.4 1.3.5 1.3.6 1.3.7 1.4 1.4.1 1.4.2 1.4.3 1.5 1.6 What Is a Project? Introduction Projects and Other Production Systems Characteristics of Projects What Is Project Management? Introduction Definition of Project Management The Basic Project Management Structures Characteristics of Project Management Introduction Multiple Objectives International Co-operation and Standards Multi-Industry/Multidisciplinary Practitioners Generic Benchmarks Specific Provisions Project Life Cycle Potential Benefits and Challenges of Project Management Introduction Potential Benefits of Project Management Potential Challenges to Project Management The History of Project Management Project Management Today 1/2 1/2 1/3 1/5 1/8 1/8 1/8 1/11 1/16 1/16 1/16 1/19 1/20 1/20 1/20 1/21 1/23 1/23 1/24 1/24 1/25 1/27 1/27 1/31

Learning Summary Review Questions

Learning Objectives
This module introduces the main concepts and philosophies of project management. These areas are then explored in greater depth, and additional ideas introduced, in the remaining modules. By the time you have finished this module you should be familiar with: • • the concept of project management; how project management differs from traditional management and the different organisation structures employed;
Edinburgh Business School

Project Management

1/1

Module 1 / Introduction

• •

the potential benefits and challenges of using a project management approach; the history and origins of project management.

A project is a one-off process with a single definable end-result or product. Some examples include building a house, introducing new human resources practices, and developing new IT systems. It is difficult to provide an example of a ‘typical’ project because project management techniques are now applied so widely that listing their possible applications would take a volume as large as this text! In addition, new uses are being found regularly. One reason for this growth in popularity is that project management is a very practical tool when used for change management purposes. The ever-increasing rate of change in the environments in which organisations operate requires them to transform themselves regularly if they are to survive and have the possibility of prosperity. Hence the continued growth in interest in project management. Much of project management is concerned with planning and controlling the three key variables associated with projects. These variables are time, cost, and quality. They are interrelated and a change in any single variable frequently has a significant impact on the others. Since project management is concerned with managing change, within the constraints of the three key variables of time, cost and quality, organisational structures for managing projects can be expected to differ from traditional organisational structures, which were developed to help managers manage in more stable environments. Organisation structures for managing projects are examined and contrasted with more traditional management organisation structures. Projects have a finite life cycle, i.e. definite starting and completion points, and it follows that any project team or organisation structure set up to manage a project will have a finite life cycle. Project management is a truly unique international and multidisciplinary profession. This characteristic has led to the development of international generic standards and is managed by a new kind of professional who operates in a different way from traditional functional managers. After studying this module, you should be able to define those main differences and understand their advantages and disadvantages compared with traditional approaches. The module also gives a brief review of how project management evolved from more traditional management structures in response to changing industrial and economic conditions. A major influence has been the tendency for projects to become larger and more complex. As a result, the penalties for failure and the rewards for success have changed significantly.

1.1
1.1.1

What Is a Project?
Introduction
The first stage in developing an understanding of project management is to define what a project is and, by contrasting with other production systems, what a project is not.

1/2

Edinburgh Business School

Project Management

Module 1 / Introduction

At any moment in time organisations will be attempting to achieve a wide range of goals and objectives – for example, the sale of goods and services, improving customer relationships, improving staff motivation, or developing new products. The range of categories for which goals and objectives may be set is infinite. In order to achieve these, some form of production system must be employed. A production system takes resource inputs and passes them through a transformation process that changes them into the desired outputs. For example, consider a simplified manufacturing organisation. The resource inputs consist of materials, labour, equipment, services and so on. The production process then transforms these into outputs of goods and services that the end customer or client buys. This general production system model of inputs, transformation and outputs is true whether the end product/service is packaged food, motor cars, consulting reports, a new building, employee training programmes, or many other things. 1.1.2

Projects and Other Production Systems
Production systems can be classified into three broad categories based on their main method of production, as follows: • • • mass production; batch production; project (non-repetitive) production.

Some industries, such as construction and defence, are dominated by the project form. Other industries, such as chemical production and production of consumer goods, use mainly mass or batch production methods. However, even businesses where the norm is mass or batch production will use projects for certain activities. This concept will be covered later in the module. Mass production systems are based around the production of large numbers of repetitive items. A typical example would be a production line for the manufacture of vehicles. The process runs continually. All the operatives and their tools are arranged within the production system and the whole process is carefully researched and developed to operate at maximum efficiency. The primary characteristics of such a system are that it is capital-intensive and highly mechanistic, and relatively little active management intervention or control is needed once the system is set up and operating satisfactorily. This system is clearly most appropriate for the large scale production of repetitive units, where there is little chance of change to the input requirements and where consumer demand for the end product is likely to be relatively constant. By way of contrast, batch production is used where there is unlikely to be continual high demand for a given product and where some modifications will be needed at intervals. A typical example is a wallpaper factory, where production runs of certain types and patterns of wallpaper are produced sufficient to supply all distribution outlets for some months ahead. At that point, the system is shut down, re-tooled and reconfigured, and the process started up again to produce the next batch. The characteristics of a batch system are that it is less
Project Management Edinburgh Business School

1/3

Questions: • Can you identify another example of a system that has mass. In this case. When the house is complete. or improving the skills of people. etc. As it receives an order from the retailer. Projects such as changing the layout of manufacturing or other facilities. it makes the paint on a batch basis. but the individual manufacturing requirements differ slightly. procurement and installation of this new equipment and the associated processes would be managed as a project. At present. For example. Project production is used for one-off. non-repetitive items. For example. Typical projects that can be found in mass or batch-production-dominated organisations are usually targeted at improving the organisation’s competitive position by improving its effectiveness or efficiency. What if the retailer expands and suddenly wants more paint? The small paint company might see an opportunity and decide to invest in a new mass-production system that will produce paint continuously (although at variable rates) in order to meet the new increased demand from the retailer. One example would be a small company that makes paint for a major retailer. batch and project phases or characteristics? • What would be an example of a system that only ever has a project phase? ♦ A project is an instrument for achieving one-off changes. should lead to permanent increases in the productivity or efficiency of these resources. Each section tools up and operates its part of the operation in essentially the same way for each batch run. This represents a strategic switch from batch to mass production. labourers skills. The company will appoint or commission a manager – the project manager – to be responsible for the project. 1/4 Edinburgh Business School Project Management . and high levels of complex management planning and control may be required. As far as the company is concerned.) into a house. The wallpaper factory might have a colour mixing section. As a result. etc. it makes up so many thousands of litres of paint and transports them to the retailer. cement. the project is complete. This one-off nature is the most prominent feature of a project. a decision is made to switch to mass production. the changes are intended to be permanent. ♦ Time Out Think about it: combined batch. a packaging section. the original production system was based on batch manufacturing. the switch from batch to mass requires the installation of new equipment and processes. As demand increases. Another example is a training project to enhance people’s skills. the end result of a project to develop a new product should increase the effectiveness of sales and marketing efforts. batch systems tend to be organised around functional groupings. a processing section. mass and project production systems. As a result of this.Module 1 / Introduction mechanistic than a mass production system and the need for management intervention and control is greater. In both cases. a quality-control section. there is no previous learning curve on which to rely. a project to build a house by changing the various resource inputs (bricks. The design.

the terms ‘programme management’ and ‘project management’ are used interchangeably.3 Characteristics of Projects A project can generally be defined by its characteristics where the following apply. Repairing aircraft damage might involve mechanical engineers.1. various projects will be undertaken. Projects often involve advanced technology and rely on task interdependencies that may introduce new and unique problems. and representatives from the aircraft manufacturer. It is unique. These people may work together on the repair as a multidisciplinary team. aeronautical engineers. Frequently. Generally. schedule (time). An example is a project to repair impact damage to an aircraft. Failure of the project might jeopardise the organisation or its goals. Each of the specific projects will be undertaken under the overall umbrella of the pollution reduction programme. how it hit. the project ceases to exist. a programme is a set of identifiable projects aimed at achieving some goal or objective. Once the impact damage is repaired. This practice will continue until – if ever – the government’s goals and objectives are achieved. It is a temporary activity. how fast it was going. where it hit. It usually has defined constraints or targets in terms of cost. If at all possible. Typically. which would also contain several projects within it. This applies to the organisational structure created to deliver it. It may encompass new technology and hence possess significant elements of uncertainty and risk.1. product or result. the project is complete.2.Module 1 / Introduction 1. Technically. the repair team goes Edinburgh Business School • • • • • Project Management 1/5 . safety inspectors. The extent of the damage will depend on what hit. Once the aircraft repair is complete. and performance requirements. An example is a time limit. It is somewhat unfamiliar. It uses skills and talents from multiple professions and organisations. It is undertaken to accomplish a goal within a given period of time. completed and evaluated. and so on. one piece of impact damage will be unique. the repair should be completed within this time frame. A project is generally a one-off activity that is never repeated exactly. a government programme to reduce pollution in the environment. as well as to the project itself. Over several years.1 Projects Versus Programmes Before considering what a project is in more detail. 1. Task and skill requirements vary from project to project. once the goal is achieved. a programme will be of longer duration than any individual project within it. Some programmes might not have any specified end date and will run until a decision is taken to stop or replace them – for example. • It involves a single. The aircraft with the impact damage might have to be repaired within a specific time frame or lose several hours in its flying schedule. Another example is a customer service improvement programme. definable purpose. the government will learn from these and new projects will be initiated. it is useful to contrast a ‘project’ with a ‘programme’.

install the system. finalisation and testing. Questions: • 1/6 Where might the installation of a new server not be regarded as a project? Edinburgh Business School Project Management . Generally the organisation is concerned with defined functional objectives and the project is subsidiary to these. Different people will write the software. ♦ Time Out Think about it: project characteristics when installing a new server. there will be an inspection. a solution. It uses the skills of a number of different people. In the case of the aircraft repair. an appraisal. The installation may be interlinked in that it may take place in conjunction with hardware or software upgrades. implementation. It works together on the server installation. Most IT managers would take advantage of a server upgrade to carry out other network improvement works such as replacing PCs or upgrading software. Projects are very rarely carried out in isolation. and resources change as the project moves from one phase to the next. in that every office is different and the demands of any particular client will be specific to that client. It is part of the process involved in working to achieve a goal. It is relatively complex. During the process. a project passes through several distinct phases. as a result. configure the hardware. Projects involve multidisciplinary teams and have defined aims and objectives. The project will always be somewhat unfamiliar because new hardware and software are coming on to the market all the time. people. and hence the resulting system requirements will be constantly changing. In organisational terms they therefore tend to be relatively complex as compared to the standard functional processes that operate within the organisation. It is part of an interlinked process. the team ceases to exist and each individual either moves on to new installation projects or moves back into his or her standard functional role. Projects are generally not the primary objective of the organisation. definable purpose. Next time the team is needed. Projects usually have clear start and finish points. As with many projects. the team itself is multidisciplinary. organisational structure. There are exceptions such as pure research and development organisations and companies that are established purely to plan and execute a single project. which is to set up a new serverbased network for the office. The installation team is also temporary. tasks.Module 1 / Introduction • • • • back to the terminal buildings and either remains on duty or goes home. it could consist of different people working on a different aircraft under different conditions. It is generally of secondary importance to the organisation. It involves a single. from individual company users to external specialist IT consultants. Installing the server and commissioning it is a unique process for the IT consultants. There is usually some interlinking between different projects that are being run by any particular organisation. The installation of a new server for the IT requirements in an office is one example of a project. and test and commission it. As soon as the installation is complete and the system is commissioned.

Hence the concept of project management evolved in order to plan.Module 1 / Introduction • How could project objectives (installation of the new server) be accurately co-ordinated with organisational objectives (general software and hardware upgrade)? ♦ From the project characteristics highlighted above. strategic awareness. the traditional organisation has been structured as a pyramidal hierarchy with vertical manager–subordinate relationships and departments along functional. They may deal with single projects where all resources are dedicated to achieving the objective of that project. marketing appreciation. attributable to the development of easy-to-use computer-based project management tools. ranging from large multinational projects such as building the Channel Tunnel connecting the UK to France and requiring Project Management Edinburgh Business School 1/7 . Traditional organisations become very efficient in what they do and are well suited to a stable environment. The growing popularity of project management tools and techniques is. Today project management is being applied across all industry sectors. Projects can be of many sizes. Departments tend to be highly specialised and operate independently. quality management. Project teams are set up to undertake projects of every type. Project management covers the whole range of functional management areas. Authority and formal communication flow down from the top. Until recently. or they may be responsible for multiple projects where resources have to be managed across projects. Skills that senior corporate executives use daily in directing whole organisations are equally relevant to project management. technical knowledge. Good project management therefore requires the effective application of a wide range of general management skills in order to achieve the desired goals. planning skills. it is clear that projects require a unique form of management. Almost universally. Skills are often required in all of these areas to secure project success. co-ordinate and control the many complex and often diverse activities involved in projects. in essence. and include: • • • • • • financial awareness. the general management of an organisation. projects and project management were considered to be limited to the construction and engineering industries. Project management is. Organisations in the banking sector are as likely to be running a programme of interlinked projects as an organisation building power stations. They are fairly rigid and therefore less suitable to the unstable and dynamic environments that characterise project situations. in part. geographic or product lines. and the recruitment adverts for project management posts are more likely to be looking for IT specialists than engineers.

Projects may also be internal. and it develops an appreciation of how project management can exist in basic internal and external forms. where they are carried out for a client outside the organisation. cost and quality targets. Projects may be external. planning. These are normally defined by a binding contract and are usually a main revenue source for the organisation. within the context of overall strategic and tactical client requirements. Project resources are resources that are wholly or partly allocated to the project and under the control of the project manager. Hardware projects are those where there is a tangible physical result. where they are generally set up to improve the operations of the organisation and the client would be an internal project sponsor. by using project resources. and quality planning and control. They are allocated for a specific time. and to required quality standards. Finally. Given the relative youth of project management as a discipline.Module 1 / Introduction millions of person hours to complete.2. An example is a new operational or administrative system for an office.2 1.1 What Is Project Management? Introduction This section considers project management as a discipline.2 Definition of Project Management The characteristics of a project have been considered above. Traditional planning and control techniques consider time. There is also general agreement that project management is concerned with the life cycle of the project: planning and controlling the project from inception to completion.2. within cost limits and to the specified standards of quality. However. cost. It is now possible to develop a definition for project management. it is not surprising to find that project management has numerous definitions. directing. within cost. down to more simple projects such as organising a social event or company newspaper. projects are either undertaken to deliver hardware or software. traditional approaches often consider them as 1/8 Edinburgh Business School Project Management . Software projects are those where the end result is a system or process. usually from within the standard functional structures that make up the organisation. 1. 1. Most authors agree that project management is about achieving time. And: The organising. co-ordinating and controlling of all project resources from inception to completion to achieve project objectives on time. such as a new building. Typical examples are: The process of planning and executing a piece of work from inception to completion to achieve safe achievement of objectives on time. rather than a physical item.

low-cost option. so a change in the position of the project on the quality axis will also reposition it along the cost and time axes. For example. or more resources can be employed. cost and quality can be represented as a three-way continuum. Monitoring and reporting activities are spread out among different specialists with different and often conflicting viewpoints that give rise to confusion among those responsible for delivering the project. For example. position A Figure 1. Another facet of project management involves choosing the optimum position in relation to the success criteria. Project Management seeks to address these problems by integrating the individual areas under the overall control of the project manager. More time can be spent on design and this will increase cost. traditional cost planning and reporting systems do not necessarily link directly into the relevant resource scheduling systems.1 The typical project-management time–cost–quality continuum Generally the facets of time. This option could be the preferred project success criterion of the client at the start of the project. and quality and time. This concept is shown diagrammatically in Figure 1. In addition. The point that represents the project success criterion will Project Management Edinburgh Business School 1/9 .1.Module 1 / Introduction separate entities that are planned and monitored using different systems. low-time. There will always be some kind of link between quality and cost. who are responsible for different aspects of project delivery. with a resulting increase in costs but maintenance of the time schedule.1 might represent a low-quality. There may be several ways by which this can be achieved. As the project develops. reports have traditionally been prepared by different consultants. the client might want to increase quality – perhaps because of the number of delays that are being caused by defective works or abortive design. Cost increase B1 Time increase B Cost Time A Quality Quality increase Figure 1.

is caused by the changing nature of industrial projects over the past fifty years. This effect is further enhanced by the increasing rate of technological evolution. but he or she also has to be able to view these within the context of the whole operating system. building to a fixed price – cost objectives would take precedence over quality and time objectives. Technology is determined by human invention. They come in many different degrees of complexity. not simply along one axis. It is not limited to physiological evolution or to the metaphysical interactions and developments that necessitate a finite rate of development. organisational and control techniques. time and quality and to specify where each sits in relation to the others. as societies become ever more sophisticated and complex. projects come in all shapes and sizes. Increasing technological complexity demands increasingly complex support. The project manager is concerned with time. This increase in complexity and multiple objectives has been a driving force behind the development of project management. the links and interdependencies between different sections of industry and commerce become more pronounced. and it can therefore evolve as rapidly as the human thought process. an expansion in the commercial sector generates a demand for expansion in the communications sector.1. Moreover. from high-capital-expenditure large construction projects to lower-cost cultural change management projects within companies. The result has been an explosion in technological innovation and an increasing use of more and more complex and sophisticated technology. cost and quality variables. the required increase in quality is leading to increases in the time required and in the overall cost.Module 1 / Introduction therefore move along all three axes relative to each other. Generally. This process involves setting up and managing a project team that may consist of a number of different individuals with different specialisations. Technological processes have become more complex and this has been coupled with more and more complicated organisational and administrative procedures. If a project has cost as its priority – for example. it will be easier and quicker to make the difficult decisions that may be required during the pressure of the project execution phase. Project management is therefore about deciding the various success and failure criteria of a project and then organising and running the project as a single entity so that all the success criteria are met. from launching a space mission to designing and printing a company newsletter. The need for integrated planning and control procedures. It is important at the start of the project to prioritise between cost. Expansion and evolution in one area produces a demand for corresponding expansion and development in other sectors. For example. The project manager must weld this group of 1/10 Edinburgh Business School Project Management . tend to evolve over time into ever more complex and sophisticated structures. like plants and animals. as commerce depends on communications. Technology and organisational processes. administration. Today. and across all projects they require the commitment of a wide range of resources and the application of a wide and varied range of skills by the project manager. By doing this. This is represented by the move from A to B. as industry has evolved. together with a recent corresponding success of project management. In Figure 1. it has become more complex.

like the project. Companies have invested in them because the potential benefits have been clearly demonstrable. although these still required large batteries. and the telephone network and equipment companies use some of the most advanced project-management techniques in the world.Module 1 / Introduction individuals into a team and then drive the team to perform successfully. but these tend to use high-capacity optical fibre rather than metallic conductors. This system was based on the telephone networks that were first developed in the late nineteenth and early twentieth centuries. Increasingly. Today. followed by mass networks involving electronically controlled exchanges. This evolution was assisted to some extent by a corresponding development in new technology in radio and other communication media. The first mobile handsets appeared in the 1980s. Once the project is completed the project team will probably be disbanded or be moved on to the next project. cost and quality objectives to change. Today. The whole telephone system is infinitely more complex than the 1960s system. ♦ Time Out Think about it: the development of system complexity and resulting need for effective project management telephone systems. There are large-scale commercial battles and take-overs involving large telephone companies. Market-driven forces for change require multiple time. the largest single membership of the Association for Project Management is Information Technology. a useful distinction can be made between internal and external projectmanagement structures. ♦ 1. delivered more quickly than the opposition. This in turn generates a need for advanced project-management practice in the rapidly expanding telephone and communications markets. The team itself. Only forty years ago. Most people in the developed world now have mobile phones that are operated through a series of competing cellular networks.2. telephone calls are transmitted by radio. The telephone exchanges were manned by operators who directed calls manually. Project Management Edinburgh Business School 1/11 .3 The Basic Project Management Structures Although numerous different organisational structures are possible. the telephone system was forced into a process of evolution. telephone systems comprised a national network of exchanges linked by metal connecting wires. there is a multiplicity of different telecommunication options. Users can still use cable-linked systems. will only last a certain time. It is also far more powerful and flexible. These remarkable changes have all been market-driven. usually occurring because of particular project characteristics such as size and complexity. Commercial radio telephones appeared in the 1960s. International calls can be made by satellite. As society developed and commercial and industrial demands on the system escalated. and the major players have become corporate giants. Users want better handsets at reasonable prices.

government departments.2.3. project management.Module 1 / Introduction 1. This format is commonly known as internal. or non-executive. Each section or group makes a specialised contribution to the whole. This section introduces the idea of project teams operating within functional units in advance of the main discussion in that module.1 Internal Project Management The most common form of project management is the formation of a project team operating within an existing organisational structure.2 Typical functional arrangement Note: some sections omitted for clarity. local authorities. A typical structure would have separate sections such as sales and marketing. A typical project team operating across functional boundaries is shown in Figure 1. This kind of structure can be found in large functionally driven organisations. The various organisational forms for project management are considered in more detail in Module 5. the project manager takes (or is allocated) individuals from their normal functional units and reallocates them to one or more projects.2. project teams can be set up to operate across these functional boundaries. now has functional and project responsibilities. finance and accounting. large companies and the military. Each person therefore. One example is an IT specialist working on a project to ensure common standards 1/12 Edinburgh Business School Project Management .3. Most firms are organised around functional groups that specialise in particular areas. such as universities. In order to make more efficient use of resources. A typical functional structure is shown in Figure 1. and operations. Board of directors Managing Director HR Director Marketing Director Sales Operations Director Financial Director Salaries IT Director Support Advertising Payments Updates Packaging Invoicing Promotions Cost control Figure 1. In this structure. The disadvantage of this structure is that people tend to become compartmentalised and work rigidly on functional tasks.

procedures and administration is maintained within the function despite any personnel changes that may occur. Projects operating across functional structures offer good flexibility in the use of people. The main characteristics of the system are as follows: • • • • A single designated person. If there is a broad base of expertise within a functional department. Staff are primarily employed to perform a functional task but are temporarily assigned to projects that require their particular expertise. The work is therefore often carried out by a range of different functional specialists working as a multidisciplinary group under the leadership of the project manager. The project manager acts as a single leader and brings together the efforts of the various functional and project resources in order to achieve the project objectives. Projects generally require a number of different functional specialists to work together. it can be employed on different projects with relative ease. Edinburgh Business School • Project Management 1/13 . The project manager acts (to some extent) independently and outside the normal functional authority structure.3 Typical project team operating across functional boundaries Note: some sections omitted for clarity. are applied throughout all of the organisation’s IT systems.Module 1 / Introduction Board of directors Managing Director Program Manager Project manager Project manager Marketing Director Marketing input Marketing input Operations Director Operations input Operations input Financial Director Financial input Financial input IT Director IT input IT input Figure 1. In addition. The project manager has equal authority to the functional managers over shared (project and functional) resources. for part of the time. namely the project manager. The internal system also has the advantage that specialist knowledge can easily be built up and shared within the function. The specialist might work normally for the IT section but. Continuity of expertise. also be responsible for working with the standards manager to make sure that all systems are covered within the time available. is responsible for managing the project organisation. individual experts can be effectively used across a number of projects.

The project structure is temporary and lasts only until the project is completed. In project organisations.Module 1 / Introduction • • • • • • • • The project manager is responsible for integrating this multidisciplinary group into a multidisciplinary project team. Given their temporary nature. finance and IT. which cut through the formal rules and procedures to expedite work more effectively. The functional managers have to concentrate on maintaining an ongoing pool of functional resources to support the primary goals of the organisation. reliance on the functional chain of command for authority and communication is inefficient and causes disruption and delay of work. an organisation working on projects must be flexible. This arises particularly in terms of the quality of people that functional managers will release onto projects and the time for which they are required by the project. Functional resources often remain under the direct control of the functional manager. The marketing department might initiate a product development project while the IT department might initiate a systems upgrade project. the formal lines of authority are frequently bypassed by informal lines. rewards and potential benefits are shared among the members of the project team and the functional units. cost and quality. so that it can alter structure and resources to meet the shifting requirements of different projects. Projects can originate from any level within the organisation. Project structures generally require the assistance of the standard support functions such as human resources. The functional units are generally permanent. Project team members generally return to their respective functional units once the project is complete. managers and workers in different units and at different levels need to associate directly with each other. the virtue of these informal lines is recognised and formalised through the creation of a horizontal hierarchy to augment the vertical hierarchy. To get the job done efficiently. This hybrid organisation enables people in different functional areas to be formed into highly integrated project teams. accountability. A project individual may report directly to both the project manager and the relevant functional manager. The project manager has to negotiate with individual functional managers for the use of shared project-functional resources. Even in traditional organisations. Decision making. A project may be subject to two lines of authority. They do not generally operate as entirely self contained sections. As a result there is the potential for conflict between functional and project managers over shared resources. 1/14 Edinburgh Business School Project Management . The project focuses on delivering the project objectives in relation to time. Since projects involve the efforts of different units from within and outside the organisation.

Edinburgh Business School Project Management 1/15 . This emphasis on project goals versus functional goals is a major feature distinguishing project and functional management roles. Any time working for the functional departments would be charged to the functional cost centre. External consultants can be hired as required as a function of workload demand.2 External Project Management External project management is where an external project manager is appointed on a consultancy basis and acts as an external agent on behalf of the client. This arrangement is shown in Figure 1. and the project team members will be specialist lecturers from these departments. 1.Module 1 / Introduction ♦ Time Out Think about it: using existing university functional specialisations to develop a new course in Marine Resource Project Management. Questions: • • • What would be the obvious advantages and disadvantages of such an arrangement? What would be the potential dangers to the functional departments under such an arrangement? How could these dangers be mitigated from an organisational viewpoint? ♦ In the role of project manager. The staff costs would be charged to the project cost centre.2. Project managers often depend on people who report directly to other managers on an ongoing basis but are assigned to them as required. Thus the task of project management is more complicated and diverse than in other management areas. The consultancy contract is a form of agency agreement. probably at faculty board level. A university might have courses already running both in Marine Resource Management and in Project Management. The existing heads of department are functional managers. The team then works under the control of the external project manager to deliver the project within the success criteria as defined by the client. The main characteristics of an external project management structure are the following: • • The external project manager acts as an agent on behalf of the client. The existing departments of Project Management and Offshore Engineering could combine to develop the new course. Once in operation. the system would effectively operate as a batch production system. The Project Manager is the new course leader for the course. The external project manager appoints other external consultants to form an external project team. reporting directly to senior university management. The external system is more flexible than the internal system.4.3. a single person is given project responsibility and is held accountable for project success. University market researchers might find that there is significant demand for a new course that combines the two existing courses into Marine Resource Project Management.

3. generic benchmarks. Because of the greater proportion of external organisations. there is a greater requirement for risk transfer and contractual control in an external project management structure. international co-operation and standards.1 Characteristics of Project Management Introduction Modern project management has a number of characteristics that differentiate it from traditional management approaches. and the external consultants owe no allegiance to the client organisation. Team allegiance tends to be lower in external structures. The objectives typically fall under the headings of time. For this reason. the functional structure of the organisation has no direct relevance to or impact on the project. Project success and failure criteria are usually set by the client or executives of 1/16 Edinburgh Business School Project Management .3 1. project life cycles. It is international in that there are standards that are set by an international agency. This can sometimes be a disadvantage. Internal and external systems are considered in more detail in Module 4. Some important elements are examined under the headings of: • • • • • • multiple objectives. 1. The objectives of the external consultants do not correspond to the objectives of the client. specific provisions. There is no in-built knowledge of the firm. cost and quality. Project management has relevance and applicability across most industries. Project management is unique in that it uses both international and industry-specific benchmarks. Project management decisions that affect any one of these variables will usually impact on the others. multi-industry/multi-disciplinary practitioners. from inception to completion. It is also unique in that project management professionals provide advice in relation to the full life cycle of a project.2 Multiple Objectives Project management is concerned with several objectives at once.Module 1 / Introduction • • • • • • Instructions and communications between the external consultants and the client have to cross the organisational boundary. external arrangements are sometimes referred to as external project management. In an external structure.3. The external project manager has direct control over the project team. 1. This boundary acts as an interface and represents a barrier to effective communication.

the project manager will affect the other two. Project management decisions are therefore generally made under conditions of direct functionality. such as manufacturing a TV set for £250 with a maximum of 3 per cent defects. This function is usually known as a cost–quality curve because of the distinctive shape of diagrams that map quality–cost relationships. In altering any one of these. This consideration can apply in both a tactical and in a strategic sense.Module 1 / Introduction Senior management Interface manager Functional manager Functional manager Resource Resource Resource Resource Functional team Functional team External project manager External consultants External suppliers External contractors External subcontractors Figure 1.5. For example the various cost and quality options can be generated for a company that manufactures TV sets. The relative importance of each of the project success and failure criteria will determine the required levels of performance for each variable over the course of the project. or others to a particular minimum quality standard. An example is shown in Figure 1. There may be several different options for cost and quality. These options can be represented as a cost quality function.4 Typical external project management arrangement the parent organisation at the outset. Some projects may have to be built as quickly as possible. some may have to be completed as cheaply as possible. at £400 with a Project Management Edinburgh Business School 1/17 .

cost and quality. and trade-offs might need to be made 1/18 Edinburgh Business School Project Management . Thus. However. However. or £500 with a maximum of 1 per cent defects. cost of replacements. the sets might have a higher level of defects.Module 1 / Introduction Defect-free rate 99% 98% 97% £250 £400 £500 Manufacturing cost per unit Figure 1. Additionally. and this characteristic can have a number of consequences. This accepted level of defects may allow them to sell at a very competitive unit price. will depend on a number of factors. the true cost may be far higher than the additional cost of reducing the level of defects during production. For each of the variables of time. It may be possible to indemnify the purchaser by issuing a guarantee or warranty with each set. this procedure may have a high eventual cost because a large number of guarantees will be exercised. including: • • • • market price of TVs. for example. guarantees and warranties in place. Project Management is concerned with meeting these minimum criteria. there is little point in building a house to cost and on time if it is so poorly built that it will fall down shortly afterwards. Project management is concerned with ensuring that the chosen project-success criteria are met within the changing constraints of the three way time–cost– quality continuum. there will be changes as the project progresses. This will impact on one or more of the variables. there may be a high true cost in that the reputation of the company may suffer and future sales may be lost. true cost of defective workmanship. In most projects. The point on the curve where the manufacturer wishes to be. Project management recognises that there is more than one success criterion. There is no point in completing on time and on cost if the quality of the finished product is lower than specified by the client. The company might choose to manufacture TV sets with a maximum of 3 per cent defects.5 Typical cost–quality curve maximum of 2 per cent defects. there should be a minimum acceptable condition.

even if the various legal governing bodies were to permit this. yet are wholly outside the control of the project manager? ♦ 1. This could amount to £1 million. ♦ Time Out Think about it: varying cost and quality for a new football grandstand.3. A football club might decide to employ a contractor to build a new grandstand. This approach is in contrast to most other types of professional service. Under these circumstances. This international professional body is the International Project Management Association (IPMA). The club might initially state that the stand must cost no more than £3 million. a delay might result in the loss of ticket sales over the first five home games of the next season. well beyond the immediate cost viability of the new stand. Project Management Edinburgh Business School 1/19 . it might be worth spending an extra £0. At some point the club might realise that the bad weather has caused such delays that it will no longer be able to open the stand by the start of the next football season. Project management is different in that a global approach has been established and is governed by an international standards association. As a profession. and commission designers and employ contractors on that basis.3 International Co-operation and Standards Project Management is international. Other events might then occur that change the relative importance of cost in relation to other project success criteria. cost might be the most important success criterion. including banking and most forms of engineering. There may be very bad weather conditions that delay the construction of the stand itself by three months. For example. Similar restrictions apply in other professions. a change in a time-based variable subsequently promoted time to being the primary success criterion because of the linked effects of a time extension on other (environmental) variables. The legal systems in any two countries are likely to be very different and it is unlikely that a lawyer who is qualified to practise in one country would be able to practise successfully in another country. capital cost was the initial success criterion. However. At this point. In this case. either the time required and/or the cost will change. This delayed opening could have significant effects.Module 1 / Introduction between them.3 million to speed up the construction process in order to avoid losing the £1 million. if the quality criterion is increased. it is unique in that its codes of practice and body of knowledge are based on international rather than national practice. For example. Questions: • • In what type of projects might weather be a determining factor on whether or not the project is completed on time? What other examples are there of wholly external factors that can determine whether or not the project is completed on time. They are outside the project environment but nevertheless affect it directly. These environmental variables relate to the financial performance of the club as a whole.

5 Generic Benchmarks Traditionally. 1. There have been the professional bodies and their codes of conduct. using national and international standards of professional practice. Examples would be the British Telecom and Construction Industry Council codes of practice. It is very unusual for any professional body to be made up of individual members from such a wide range of professional backgrounds.3. For example. It is again generic and is applicable across all industries. On other occasions. cost and quality control. Sometimes large companies have combined to develop industry specific responses to the various generic standards.3. The IPMA ensures that the codes of practice and bodies of knowledge of the various national project management associations adhere to one standard as closely as possible.4 Multi-Industry/Multidisciplinary Practitioners The concepts and practices of project management are not specific to any one industry. It is generic and is applicable across all industries. 1/20 Edinburgh Business School Project Management . British Standard BS6079 is the current UK standard for project management practice. but there was never any real attempt to standardise how projects are set up and managed. In addition. Specific country standards are therefore controlled. 1. a wide range of disciplines uses project management. Project Management specialists provide combined time. they are consistent with them. This changed significantly during the last ten years of the 20th century. For example. by international standards that are set and regulated by the global body. such as the Association for Project Management (APM) in the UK and the Project Management Institute (PMI) in the USA. to some extent. There are a number of industry-specific standards for project management practice. ISO10006 is the European code of practice for project management of the design process. The three largest membership groups within the APM are information technology (IT) followed by process engineering and then construction. allowing only for essential cultural and economic differences. and so on. 1.6 Specific Provisions Many organisations use fully trained project management professionals to run projects. there was no standardisation of practice for professional project management consultants. what cost control systems should be used. PRINCE2 is an attempt at producing standardised project management practice within controlled environment industries and UK government. The time. While these specific codes are less general than the generic codes. rather than designers or others acting as managers. cost and quality planning-and-control techniques used in project management are as applicable to agriculture as to process engineering. very large companies have developed company-specific responses.Module 1 / Introduction This body administers an international approach to project management and co-ordinates the activities of specific international professional associations.3.

with no significant consideration of longer-term cost implications. the use of aluminium for the body might significantly extend the life span of the car. The project manager could have been a specialist designer (as in the case of engineers or architects) or a specialist cost consultant (as in the case of accountants or surveyors). Another example is the choice of materials for items such as car bodies. Traditional approaches have used consultants to give advice on design and/or manufacture only. the people leading and managing projects were designers or other types of specialist who assumed the role of manager for the duration of the project. Aluminium might be a lot more expensive than steel in terms of capital cost. the client decides to develop a project. 1. For example. there are a number of recognised life cycle phases for projects. As a result. This transition has been matched by a worldwide proliferation of project management courses offered by universities. decisions on material choice affect choices on disposal in the decommissioning or recycling phases. decisions taken in the design phases have a direct effect on decisions that can be made in the operational phase. The modern concept of project management includes the professional project manager. The project manager is responsible for giving clients advice that covers the complete life cycle. but in terms of maintenance costs it could be far more cost-effective because it does not rust.3. the project manager should give professional advice on both capital costs and ongoing costs relating to any decision on choices of material. alternatively. For example. Depending on the design and assembly of the other car components. These perspectives Edinburgh Business School • Project Management 1/21 . it could be a new requirement based on changes such as consumer demand or technology. Increasingly. the project team seeks to establish the validity of the proposal from all relevant perspectives. In the feasibility stage. In the inception phase. In general. only one or two sections of an overall project life cycle. In many cases. there was a lack of co-ordination between the different life cycle phases. and in specialist short courses offered by specialist management-training and consultancy firms. This is important because decisions in earlier stages of the project life cycle impact on the choices available at later stages. consultants advised on.Module 1 / Introduction Traditionally.7 Project Life Cycle Traditionally. In the inception phase. the client assembles a basic proposal for the work that is required. this type of professional person is a specialist manager who is educated and trained in project management and who has relevant industrial experience in project management rather than in design or in some other specialisation. Typical life cycle phases include the following: • Inception. The inception phase could have been developed years earlier as part of the overall corporate strategic plan of the particular company concerned. project managers were selected from functional specialists within an organisation. Project management as a discipline attempts to correct this by giving professional advice based on the whole picture. Similarly. and managed. Feasibility.

Prototype. be a single one-off process for a building. where significant and lengthy prototype evaluation is often necessary before the design can be converted into full production. More commonly. Once a prototype (if appropriate) has been adjusted and all feedback has been put back into the design system. technological and. The commissioning phase involves all aspects of switching the system on. this involves developing detailed production information. In some industries. followed by numerous calculations and adjustments. Full design development.Module 1 / Introduction • • • • • can be financial. the lowest-priced tender that meets the specification wins the contract. but a significant proportion of the components are bought directly from external suppliers. The product is assembled during the manufacturing process. It may take several months to commission a new submarine fully. Generally. In most cases. it is common to develop some kind of prototype that can be fully tested and evaluated prior to full production. This may involve weeks of power trials while the boat is in dock. The Navy would award a contract to an external naval architect to design it. Commissioning. Each stage may involve many manoeuvres and simulations. The prototype could be tested and refined for significant periods of time before the final design is put into full production. A tender is a price given by a contractor in return for doing a piece of work that is clearly detailed and described. in order to evaluate likely consumer or market demand for the end product and/or service. An obvious example would be the design of a new aeroplane. This phase could. This act may be simple in some systems. The tendering process is usually competitive in that several contractors are invited to submit competitive and confidential tenders for the same piece of work. in some cases. Ford employs its own designers and assemblers and puts the cars together on its own production lines. for instance. time-dependent. and far more complex in others. and another to an external shipbuilder to build it. The end result of the feasibility phase is a statement of the viability of the proposal in relation to the variables that have been evaluated. A typical example of this would be the award of a contract for the manufacture of a new ship for the British Royal Navy. together with a full specification that defines the required standards of manufacture and assembly for each component. The submarine would only be accepted by the Navy once the Edinburgh Business School Project Management 1/22 . manufacturers have their own production facilities but buy in a lot of manufactured components from external suppliers. This typically involves the preparation of full production drawings that show all aspects of the design. Manufacturing. full production design can commence. External works are usually secured through some kind of competitive tender. political. Other organisations award the whole manufacturing process to external companies and organise things through external consultants. Some organisations manufacture all aspects in house. The feasibility phase may include extensive market research. or a repetitive process for manufactured components. An example of this would be Ford cars. Tendering and contractual arrangements. followed by extensive surface and dive trials.

even though the design and construction process took years. interdisciplinary and concerned with the whole life cycle of a project. Again. Examples of systems with a long operational life span would be new buildings. cost and quality objectives of a project and to ensure that they are achieved. it is still radioactive. Operation. The very process of switching off might involve the long-term removal of fuel rods and maintenance of cooling systems for a considerable period of time.4 1. There seems little doubt that some of the older UK nuclear power plants would not have been designed as they were if full consideration of eventual decommissioning and recovery had taken place. Project management is concerned with advice on the above phases so that the client can make informed decisions during design and manufacture on matters that may incur a cost penalty in future. It uses a trained management specialist to organise the time. Even after the reactor is turned off. decommissioning the reactor and all the other contaminated systems may take many decades with current technology. Increasingly. the Saturn V moon rockets were developed as one-shot systems.4. such as those that involve toxic processes or nuclear contamination. Ever larger numbers of manufactured goods are being assembled with recycling and reclamation in mind. the whole rocket and capsule was only used once and the operational life span was only a few days. cannot simply be switched off. this act can be simple in some cases and much more complex in others. and recycling. Removal and recycling. An old car can be decommissioned at once simply by switching off the engine and leaving it with a recycler. These may be designed with an operational life span of sixty years or more.Module 1 / Introduction • • • contractor has completed all the required commissioning trials. Decommissioning is the process by which a system is switched off. In the operational phase the system is actively used for the purpose for which it was originally intended. Decommissioning. In future. legislation and environmental concerns will cause more and more products and systems to be designed for ease and completeness of recycling. this could be the longest part of the project life cycle. At the other extreme. packaging is being manufactured from recycled materials and/or other materials that can be recycled. 1. This section considers specific advantages and disadvantages associated with the project management approach. It is international.1 Potential Benefits and Challenges of Project Management Introduction Project management is a relatively new approach to managing projects. while for other systems this may not be the case. Other systems. Legislation in many countries is becoming increasingly onerous in relation to the environmental impact of recycling. The last phase is removal. For some systems. Project Management Edinburgh Business School 1/23 .

individual and management skills. Project and functional managers may attempt to compete for resources and this can have detrimental effects on the company as a whole. 1. a need arises for an additional level of authority. increased accountability. Project team members may find themselves receiving conflicting orders from their functional and project managers.4. This may have a corresponding detrimental effect on functional performance. Some of these are listed below. consideration of life-cycle costs. • • • • • Key staff may be taken from the functional units. improved innovation through the use of multidisciplinary decision making. opportunities to develop in-house interdisciplinary and multidisciplinary teams. • • • 1/24 Edinburgh Business School Project Management . Project staff who have been working on a project for a long period of time may have problems in re-adjusting to functional working.2 Potential Benefits of Project Management Many benefits have been claimed by organisations employing project management practices.3 Potential Challenges to Project Management Organisations that are regularly involved in projects face some major challenges in relation to their people. reduced disruption of functional operations. more efficient use of company resources. enhanced visibility of strategy implementation. control of simultaneous multiple objectives. increased product development and release speed. Staff need to develop a different attitude. The project sponsor ensures that the functional and project managers have equal authority over project team resources and that no destructive competition occurs. potential for healthy competition between functional and project units. These include: • • • • • • • • • • • • • • increased concentration on a specific objective. improved team spirit and cohesion. In order to ensure parity of authority and control between functional and project managers.4. Functional managers may be less flexible than project managers and may feel pressurised as a result of project demands. They have to develop a more flexible approach and become used to working in a multifunctional environment. improved security of project related information. Powerful functional manager may be able to use their authority to deprive the project of necessary resources. improved formal and informal communications.Module 1 / Introduction 1.

leading up to the livery companies and other institutions in the nineteenth century. the size and complexity of many projects had increased so much that the well developed techniques of the first half of the twentieth century were unable to cope. Later. This has traditionally been for the benefit and development of their profession or trade. so that formalised educational qualifications and standards began to appear. The US defence industry was finding it difficult to control Project Management Edinburgh Business School 1/25 . Around 1950. This was the first really complex. the Great Wall of China and the Roman roads and aqueducts. such as the Pyramids. workforces. What is common to all construction works through history is that they all require special organisations. Project management in its current form emanated from the atomic bomb development programme by the US military at Los Alamos. but its origins go back much further. Elements of project management probably first came to light in the great construction works of history. product-development activities. facilities and resources for the single purpose of completing the job or the project. the institutions and educational bodies began working more closely together in order to improve the relevance of the educational qualifications. The industrial revolution changed the requirements of industry. They were found to work well for standard products in batch or mass production. The old medieval institutions responded by establishing standards for their members conveying education. In the early 1900s.5 The History of Project Management No one individual or industry is responsible for the concept of project management. although a by-product was the establishment of rules and standards for practice. but were less efficient in managing the production of non-standard products. In Europe. Often it is attributed to the early space programmes of the 1960s. The level of complexity and large number of activities involved created the requirement for new management and control practices if the project was to be completed on time and to the required standard. In all cases. particularly in large-scale. high-technology project operated by mankind. the first network diagrams for industrial processes were introduced. These techniques have been improved and developed over time. the underlying motivation was that of protecting financial interests. planning techniques were developing and during the early 1900s the Gantt chart was introduced. this tendency was characterised by the formation of associations called guilds and leagues in medieval times. At about the same time. There was a switch away from a need for craftsmen towards a need for supervisors who could manage both the people and the new technologies. professionals generally bonded together to form groups and associations. These are two of the most widely used tools of project management today. By the mid-1950s. manufacturing managers could see that some of the tools and techniques effectively used in the construction industry could be adapted to suit the planning and controlling demands of manufacturing industries. Over the centuries. qualifications and membership.Module 1 / Introduction 1. Governments and educational establishments also responded to this. What we call ‘traditional’ management practices evolved during the Industrial Revolution and beyond. knowledge and competence. in the 1940s.

This concept led to performance measurement systems that kept track not only of funds spent but also related these expenditures to the value of the work that was completed. additional methods were developed to help project managers. The APM produced its Body of Knowledge in 1988. developments in computer technology provided improved capabilities for storing the vast amount of information generated on large projects. scheduling and controlling large projects with numerous interrelated work activities. 1/26 Edinburgh Business School Project Management .Module 1 / Introduction the cost and time schedules of its large-scale weapons systems projects: some very large cost and time overruns occurred. a wide variety of high-quality project management software programmes is readily available. Some enabled managers to specify the type and quantity of resources needed for each activity. Most of the systems were very expensive. The discipline of project management thrived in this environment and the Project Management Institute in the US and the Association for Project Management (APM) in the UK were formally instituted in the late 1960s. Low-cost software has made it possible to apply sophisticated planning. The cost and organisation needed to operate the systems restricted their usage to only the largest projects. These documents are British and European standards for project management practice and in many ways mark the frontiers of the development of the discipline as a profession today. by the US Navy and the DuPont Corporation. and to plan for and allocate resources across a number of projects simultaneously. project planning and tracking systems were available only for large mainframe computers. both methods were combined with computer simulation techniques into a method called graphical evaluation and review technique (GERT) to allow a more realistic analysis of schedules. In 1957. This led to much more reliable forecasting of what a project would cost at completion and when it would be completed. Network methods were improved to integrate project costing and project scheduling. Both methods originated exclusively for planning. Today. resource planning and performance analysis to projects of all sizes. then later with other large-scale projects such as nuclear power plants. This changed in the 1980s with the advent of the relatively inexpensive microcomputer. and assisted greatly in the preparation of British Standard BS6079 in 1996 and European International Standard ISO10006 in 1997. scheduling. About ten years later. it was not until the 1970s that planning and costing based on an ‘earned value’ concept came into widespread use. Although the concept had been around for a while. By the mid 1960s. Throughout the 1960s. These techniques became more widely used in the late 1960s when the federal government in the USA mandated the use of network scheduling/costing methods. first with the US Department of Defense and NASA contracts. To address these problems two new network-based systems were developed almost simultaneously. Prior to the 1980s. cost analysis. and in 1958 the US Navy launched the program evaluation and review technique (PERT). DuPont created the critical path method (CPM).

Some of the more traditional professional bodies are recognising the impact of project management and are setting up their own divisions to offer specialisations in the subject. implementation and use. The RICS has chosen to do this by setting up its own surveyors’ version of project management. the RICS has accepted that project management as a profession is infringing on the activities of its members to such an extent that the threat has to be addressed. especially construction. which is concerned with training and standards for the professional surveyor. Project management as a profession is proving very successful. In doing so. Project management techniques today allow previously unheard-of opportunities for evaluation and comparison. the use of a Strategic Project Plan (SPP) allows accurate and standard recording and reporting of all aspects of a project’s development. There is no reason why a project manager in charge of a forestry project in France should not be able to look at the contract documentation and project records of a UK construction project and be able to understand 90 per cent of the information that is presented there. Project management has evolved into a global generic profession. This practice of standardisation includes design. Increasingly. SPPs are increasingly being used as an assessment technique to assist in deciding which project management consultancy to employ.Module 1 / Introduction 1. This standardisation allows comparisons to be made that would not previously have been possible. This has been accompanied by a proliferation of professional project management consultancies. while the popularity of construction project management has soared. project managers all over the world speak the same project ‘language’. large organisations are setting up their own project management development sections. a good SPP allows immediate and direct comparison of the performance of design consultants. a project is one type of standard production system. Hence we have the Royal Institute of Chartered Surveyors (RICS).6 Project Management Today Project management is now used by numerous different disciplines and has evolved into an integral management component for a wide range of industries. In many sectors. execution. establishing a project management specialisation within one of its professional divisions. For example. The UK and US professional bodies for project management are growing faster than any other comparable professional bodies in either country. Learning Summary What is a Project? • • Along with mass production and batch production. A number of other professional bodies have done something similar. Provided that the correct international standards are observed. Edinburgh Business School Project Management 1/27 . Projects are characterised by having one-off and unique objectives and characteristics. the relative growth in the design professions such as architecture and structural engineering has been relatively static. For example.

Project management operates largely within existing organisations. accountability. In contrast. but are temporarily assigned to a project that requires their particular expertise. This has resulted in more and more complex projects. Continuity of expertise. If there is a broad base of expertise within a functional department. cost and quality planning and control. conflict may occur between functional and project interests. individual experts can be used effectively on a number of projects. The project manager negotiates directly with functional managers for support. Traditional planning and control techniques consider time. despite any personnel changes that might occur. while the project manager is responsible for integrating and overseeing the start and completion of activities. In most cases. managing and controlling the process required to achieve safe completion of a project on time. which created a need for more effective ways to manage them.Module 1 / Introduction What is Project Management? • Project management involves devising. cost and quality variables within the context of the whole operating system. it has become more complex. Edinburgh Business School Project Management • • • • • • • • • • • • • • 1/28 . as industry has evolved. The project manager’s role has evolved to be able to view a project’s time. functional units must maintain an ongoing pool of resources to support their organisation’s goals. but project management seeks to consider and evaluate each one concurrently. Functional managers usually remain responsible for individual work tasks and personnel within the project. The ‘within function’ structure also has the advantage that specialist knowledge can be easily shared within the function and utilised effectively by the project team. The project manager is the single focal point for bringing together all efforts in pursuit of the project objectives. and to a particular quality standard. The project focuses on delivering a particular product or service at a certain time and cost. As a result. procedures and administration is maintained within the function. The project manager heads the project organisation and operates independently of the normal chain of command. outcomes and rewards are shared among members of the project team and the functional units. it can be employed on different projects with relative ease. within cost and to the required standards of quality. Staff are primarily employed to perform a functional task. Generally. The project manager is responsible for integrating people from different functional disciplines who are working on the project. Projects operating within functional structures offer good flexibility in the use of people. the objective of the project team is to meet the success criteria for the project and then to disband. Few other aspects of enterprises have such requirements. In addition. Decision making.

the functional units from which it is formed may be permanent. it is not acceptable to consider any of these variables in isolation. Projects can be internal where they are generally set up to improve the operations of the organisation and the client would be an internal client. Edinburgh Business School • Project Management 1/29 . As a result of this. Project teams are set up to undertake projects of every type. there is no learning curve and high levels of complex management planning and control are required. The concept of project management has evolved in order to plan. accounting. or they may be responsible for multiple projects where the resources have to be managed across projects.Module 1 / Introduction • • • • • • • • • • • Though the project organisation is temporary. such as personnel evaluation. and information systems. because each of them has a bearing on the eventual performance of the others. Project management sets into motion numerous other support functions. an organisation working on projects must be flexible so that it can alter structure and resources to meet the shifting requirements of different projects. the project organisation is disbanded and people return to their functional units or are assigned to new projects. whereas technology applications originate in research and development. and so on. the product is a one-off non-repetitive element. Under the project management philosophy. Good project management requires the effective application of all the general manager’s skills to achieve the projects goals. Projects can be external where they are carried out for a client outside the organisation. Characteristics of Project Management • • Project management is unique in that it uses both international and specific industry benchmarks. cost and quality performance for a project. Projects can originate at different places in the organisation. Product development and related projects tend to originate from marketing. co-ordinate and control the many complex and often diverse activities involved in modern-day commercial projects. They may deal with single projects where all resources are dedicated to achieving the objective of that project. and skills are often required in each of these areas in order to secure project success. These are normally defined by a binding contract and are usually a main revenue source for the organisation. Project management is also unique in that it represents an entirely new profession that gives professional advice in relation to the full life cycle of a project. Project management assumes responsibility for optimising time. Given the temporary nature of a project. When a project ends. from inception to completion. Project management employs the whole range of functional management areas. Project management is principally the general management of an organisation within an organisation. In a project system.

Project management can also provide clearer communication on progress and input to strategic plans. There are also challenges to using project management as an approach. there should be a minimum acceptable condition. cost and quality. for limited and finite organisational resources. Project management often involves using fully trained project management professionals to run projects. Projects will inevitably compete. Project management is concerned with meeting or exceeding these minimum criteria in all cases. the promotion of healthy competition between organisation projects. and improved team building and team spirit. Potential Benefits and Challenges of Project Management • Some of the obvious benefits of using a project management approach are that it makes more efficient use of company resources. • • • • • • • 1/30 Edinburgh Business School Project Management . and full life cycle cost consideration at each stage. There may be problems with this if the functional staff have been working on the project to a large extent. Increased staff flexibility is also required. rather than designers or others acting as managers. For each of the variables of time. at least to some extent. Project management also offers greater visibility of strategies and concepts within the organisation as a whole. it offers reduced disruption of routine operational activities.Module 1 / Introduction • • • • Project management is concerned with ensuring that the project success criteria are met. improved control and security of classified and sensitive information. project management recognises that there is more than one success criterion. individual accountability and responsibility. clearer control of expenditure. Project management can provide clearer management. There is no point in completing on time and on cost if the quality of the finished product is lower than specified by the client. In order for a project management system to work. a shorter time from development to market. If not properly controlled. However. Staff have to be re-deployed when the project terminates. key staff are taken from functional units for a proportion of their time. and better use of resources. and it offers greater motivation potential for people working in projects. The modern concept of project management includes the evolution of the professional project manager. and/or for a significant amount of time. Functional managers tend to be less visible and flexible than project managers. this could damage the performance of the functional unit.

The discipline was developed and led to the formation of the Project Management Institute in the USA and the Association for Project Management (APM) in the UK in the 1960s.1 All types of production systems involve projects. The atomic bomb project was the first really complex. • • • • Project Management Today • Project management is now used by numerous different disciplines. The APM produced its Body of Knowledge in 1988. and the need for a new management approach was identified. it is growing rapidly in many countries. but the next real milestone was the development of cheap and reliable computers in the early 1980s. the size and complexity of many projects had increased to such an extent that the well developed management techniques of the first half of the twentieth century were unable to cope. These reference works document British and European standards for project management practice and in many ways mark the frontiers of the development of the discipline as a profession today. Project managers are increasingly being accepted as fundamental contributors to the operational process. Project management today has evolved into an internationally important discipline. The solution was to further develop the Los Alamos principles into what we now call project management.Module 1 / Introduction The History of Project Management • Modern project management has evolved from the basic principles established during the development of the Los Alamos project in the USA in 1944. Throughout the 1960s. The US defence industry was finding it difficult to control the costs and time schedules of its large-scale weapons systems projects. and some very large cost and time overruns occurred. and has evolved into an integral management component for a wide range of industries. What is a Project? 1. • • Review Questions True/False Questions These questions are designed to allow you to evaluate your general understanding of the subject areas quickly. By the mid 1950s. additional methods emerged to help project managers. and assisted greatly in the preparation of BS6079 in 1996 and ISO10006 in 1997. high-technology project operated by mankind. T or F? Project Management Edinburgh Business School 1/31 . You should attempt these questions as quickly as possible. As a profession.

13 Project success and failure criteria are fixed at the outset of a project and cannot be changed once the project has started.16 Highly rigid functional organisations.6 A project generally has a single definable purpose.9 Project management is not concerned with the entire life cycle of the project. cost and quality. T or F? 1.8 Projects can exist both internally and externally to the parent organisation. T or F? 1. T or F? 1/32 Edinburgh Business School Project Management . T or F? 1. T or F? 1.20 External project management is more cost-effective than internal project management. such as the armed forces.17 Project managers tend to have more power and status than functional managers. T or F? 1. T or F? 1. T or F? 1.15 Research and development work would typically be best suited to a functional organisational structure. T or F? 1.7 A project is generally a temporary activity.18 Project managers tend to be selected from within the ranks of the organisation’s functional managers.Module 1 / Introduction 1. T or F? 1.21 Changing success criteria can be managed using trade-off analysis. cannot make effective use of internal project structures.19 Successful project managers always make the best functional managers.11 The success of most projects can be evaluated in terms of time.5 Knowledge transfer between projects is similar to knowledge transfer between batches. T or F? What is Project Management? 1. T or F? 1.12 Project management has evolved primarily as a result of the increasing complexity of projects. T or F? 1. T or F? 1. T or F? 1. product or result.10 Project management is concerned with multiple objectives. T or F? 1. T or F? 1. T or F? 1.2 Mass production systems comprise a series of individual projects.14 Project management and functional management are mutually exclusive and cannot exist in parallel within an organisation.4 Project products tend to be largely repetitive and complex. T or F? 1. concerned with the achievement of a specific goal. T or F? 1.3 A mass production system manager generally has more or less the same role and responsibilities as a project manager.

Module 1 / Introduction 1. Project Management Edinburgh Business School 1/33 . time and quality. T or F? 1.31 Which of the following is correct? A typical example of a batch production system is the manufacture of A B C D an office building. an automobile.26 PERT and CPM methods of project planning and control first appeared as operational tools in the 1940s. What is a Project? 1. All three. T or F? 1. cost and quality.30 Which of the following is correct? A typical example of a mass production system is the manufacture of A B C D an office building.25 Project management as a discipline originated during the Roman road building programmes in the first century AD. T or F? 1.23 BS6079 is an EU standard for project management practice. All three. T or F? 1. T or F? Multiple Choice Questions These questions are designed to allow you to evaluate your knowledge and understanding of the subject areas in more detail.29 Which of the following is correct? Most projects have clear success criteria expressed in terms of A B C D time and cost.22 The IPMA is the international steering body for global project management practice. quality and cost. You should again go through the questions and try to answer them as quickly as possible.24 Life cycle phases vary in importance as a function of project type.28 Project management is a tool for strategy implementation. time.27 Project management is proliferating through a range of professional disciplines. 1. an automobile. office carpets. office carpets. T or F? The History of Project Management 1. T or F? Project Management Today 1. 1.

1. functional groups. less important. 1. wholly incompatible. Other obvious control criteria could be A B C D company strategy. 1. human resources.35 Which of the following is correct? Project management involves the simultaneous control of time. matrix groupings.37 Which of the following is correct? In corporate terms. variable. equally important. What is Project Management? 1.36 Which of the following is correct? In general terms.Module 1 / Introduction 1.32 Which of the following is correct? A typical example of a project production system is the manufacture of A B C D an office building. neither. generally incompatible. All three. the success of the project in relation to the success of the function is likely to be A B C D more important. 1. dividend levels. only external team members. safety. 1/34 Edinburgh Business School Project Management . project and functional objectives are likely to be A B C D wholly compatible. office carpets.34 Which of the following is correct? External project management systems typically involve A B C D only Internal team members. generally compatible. an automobile. both. All three. cost and quality.33 Which of the following is correct? Internal project management systems typically involve projects running within A B C D other projects.

Japan.Module 1 / Introduction 1. project costs. A British standard. Project Management Edinburgh Business School 1/35 . the USA. Germany.40 Which of the following is correct? Project management evolved largely in response to increasing A B C D project complexity. 1.41 Which of the following is correct? Project management evolved initially and primarily in A B C D the UK. PMI. BS6079. A European standard.38 Which of the following is correct? The global body for project management practice is A B C D APM. The History of Project Management 1. project time scales.39 What does BS6079 acts as? A B C D A global standard. Project Management Today 1. 1. static. growing slightly. project team development. growing rapidly. Other. IPMA.42 Which of the following is correct? Project management as a profession is A B C D in decline.

.

3 2.3.4 2.5.6 2.5 2.7.2.4.3.1 2.4.9.3 2.3.8.5.6.5 2.2 2.3 2.5 2.3.2.7.2 2.2 2.4 2.8.2 2.4.6.3 2.1 2.1 Introduction The Project Manager Introduction Selecting the Project Manager Some Essential Project Manager Requirements The Project Team Introduction Project Teams within Functional Organisations Team Multi-disciplinary and Heterogeneity Issues Group and Team Processes Project Team Performance Project Team Introduction Project Team Project Team Project Team Staffing Profile and Operation Staffing Profile Operation 2/2 2/4 2/4 2/4 2/11 2/30 2/30 2/30 2/33 2/34 2/36 2/36 2/36 2/36 2/40 2/42 2/46 2/46 2/46 2/49 2/49 2/51 2/53 2/53 2/53 2/56 2/58 2/58 2/58 2/59 2/62 2/63 2/63 2/63 2/66 2/68 2/68 Project Team Evolution Introduction Project Life Cycles Project Change Control and Management Project Team Evolution Groupthink Project Team Motivation Introduction McGregor and Maslow Equity Theory and Expectancy Theory Project Team Communications Introduction Project Communication Formal and Informal Communication Internal and External Communications Project Team Stress Introduction Origins and Symptoms of Team Member Stress Stress Management Conflict Identification and Resolution Introduction Project Management Edinburgh Business School 2/1 .2 2.1 2.3 2.3.7.5.5.5.7 2.8 2.3 2.6.4.2.8.1 2.2 2.Module 2 Individual and Team Issues Contents 2.2 2.7.1 2.4 2.4 2.3 2.1 2.4 2.3 2.2 2.1 2.9 2.1 2.

This module will give a brief overview of some of the main areas that are relevant to effective project management. budgets. define the critical path. forecast cash flows. Complicated techniques are used in almost every aspect of project management today. Plans.4 2. easily meet the specifications. and are very successful. this module covers the human issues that are relevant to project management. monitoring and controlling. using highly complex but easy-touse computer programs. it is not clear how much more effective they need be. budgeting. We should not be surprised by 2/2 Edinburgh Business School Project Management . such has been the rate of development to date that future developments are likely to provide progressively more limited advancements. detailed drawings and reports are easily generated and beautifully presented in formats that are easy to understand.9. At the same time. developments in information technology have provided much-improved capabilities for planning. some projects fail altogether.9. managing the many internal and external people necessary for a project to succeed is a major activity and can be a source of difficulty for project managers.2 2. Information can be processed and distributed quickly and accurately. Many projects run out of money. many projects are completed ahead of schedule.9. today’s tools are very effectively used in even the largest projects and life without them is unimaginable. Certainly. smooth out resources. well inside the budget.5 Sources of Conflict Conflict Characteristics Approaches to Conflict Conflict Management 2/68 2/69 2/70 2/72 2/74 2/78 2/85 Learning Summary Review Questions Mini-Case Study 2. Although it is logical to assume that the tools and techniques used in project management will continue to develop.Module 2 / Individual and Team Issues 2. Thus. Despite all the assistance from the use of modern computerised tools and techniques. With the exceptions of speed of information generation and distribution. There is a well-developed literature on individual and team human issues. projects still continue to incur difficulties in all areas of project management.3 2. Relatively low-cost software will calculate variances. some run out of time. The tools and techniques used in project management are becoming ever more refined and sophisticated.9. and carry out many other complex tasks at the push of a button or click of a mouse. This provides project managers with a level of effective support that could not have been imagined even ten years ago.1 Introduction In practice. others do not conform to specification. The overview concentrates on those aspects that are most relevant to the functional requirements of the project manager and the project team. around the world if need be. On the other hand.

This section analyses the origins of team stress and appropriate stress-management options. Every project is unique. and relates this to a project management setting. cost and quality management and control can only be used effectively if the project team operates properly. the team is unlikely to operate in compete harmony at all times. The module then examines the classic management skills requirements of all managers. These include a strong human element. That person is the project manager. Nearly all projects operate within some kind of defined life cycle.Module 2 / Individual and Team Issues any of this. plan for and control the progress. predict. This module begins with the person who is. This section considers informal and formal communications. The management functions of leadership and team building are important for good group performance. such as managing the team-building process. Even with efficient leadership. team-building processes. and communications. There is no urgent need for developing further the methods used in project management. do not fail because the planning hardware or software broke down. both collectively and in terms of each individual. and the people involved contribute to that uniqueness more than any other aspect. Conflict is considered in terms of its characteristics and management. it would be a surprise if projects failed or were ‘too successful’. The module then moves on to examine some theories on motivation. The module then considers project team communications. Workload pressures. team member transition and a range of other variables can all bring about stress and conflict within a project team. People make projects succeed or fail. likely to have the greatest influence over whether the project has a successful outcome. arguably. If project management relied only on tools and techniques. communication is perhaps the most important single element in project team effectiveness. and how they relate to the project environment. The people. The project manager has to be able to build the team and then maintain control and co-ordination as the team evolves and develops. The staffing process is considered. The technical tools for time. The next section discusses project-team staffing. They make the decisions. This is perhaps the single most important aspect of team performance. The complexity and information requirements of most projects effectively preclude individual operation except for the most simple of projects. together with the effects of transition and change as the team evolves. Project Management Edinburgh Business School 2/3 . in general. As a result. in order for it to perform effectively. Projects. project managers have to operate both as team members and as project team leaders. and also internal and external communications. are a major factor in the success of any project. After motivation. The final text section of the module considers project team stress. A project team may exist for a significant period of time and involve transitions as people join and leave the team at various stages as the project progresses. real or perceived inequities. but the team has to be motivated. Most project management practice has to be team-based. transition and change.

1 The Project Manager Introduction One of the most important decisions in project management is the choice of project manager. Conversely. project team communication and motivation. There are also wide variations in the roles and duties that are undertaken by project managers in different industries and sectors. This section looks at the typical characteristics involved in the selection and positioning of the project manager within the organisation. there are projects where so many unforeseen obstacles and problems arose that failure could be expected but the project succeeds because of the leadership and other qualities of the project manager. project team stress and conflict. 2.Module 2 / Individual and Team Issues Learning Objectives By the time you have completed this module you will be familiar with: • • • • • • • • the concept of what a project manager is. the concept of what a project team is and how it works. project team staffing and profiling. There is widespread use of the term ‘project manager’ in commerce and industry. In the case of internal projects they are mostly selected from 2. Given the wide range of types and sizes of projects. In practice. it is very unlikely that any one human being will possess all of these.2.2 Selecting the Project Manager Introduction Project managers are sometimes qualified and experienced project management specialists who are employed on a permanent basis by an organisation.2. the typical position and role of the project manager. but the term means different things to different people. Although this section considers the many attributes and skills that are desirable in a project manager. project team life cycles and evolution. this is hardly surprising.2 2.1 2/4 Edinburgh Business School Project Management . Many project failures can be traced to bad choices in this area. 2. It considers the typical duties and responsibilities of the project manager and relates these to the personal and management skills that are therefore required of a good project manager.2. These factors should be borne in mind throughout this section.2. Sometimes they are external consultants who are contracted to manage the project for its duration only. it is a matter of deciding which are the most important in relation to any specific project and then selecting the person who most closely matches the specification. the essential project management skills.

and back again through the same route to the project manager. However. It does not have the power associated with traditional hierarchical positions. There are. As with the project team (discussed later) the project manager does not conform to one specific model. In all cases they are charged with organising and managing a project team that will work together in order to meet the project objectives. For example. and these are explored later. resolution of problems and so on had to follow the functional hierarchy and travel from the project manager via the controller to other functional heads at the same level.2. not all capable project managers are suitable for all project types. Project managers must work across functional and organ- Project Management Edinburgh Business School 2/5 .2.2 The Concept of the Project Manager A project manager is similar to a chief executive or managing director. This section considers the concept of the project manager in relation to that role’s characteristic central position within the organisation. skills and attributes that make some people more suitable for the role of project manager than others. The project manager is usually responsible to a project sponsor. a project for developing and introducing a new management reporting and control system for a complete organisation may be sponsored by the controller’s department but will require extensive co-operation and assistance from all the other functional areas if it is to succeed. instructions. or those that will have a significant influence on the future of the organisation. In some cases there will be several sponsors who will operate as a team. where small to medium-sized projects are concerned. In addition. the sponsor will normally be a board member. Hence projects tend to be run outside the traditional hierarchy of the organisation. Indeed. The position of the project manager is a very difficult one because of a project’s position within an organisation. The project manager owns the project and has sole responsibility for its outcome. any complex project will usually require the support of many levels of management within organisations and of many departments/functions across the organisation. It then extends this concept to consider the typical role of the project manager and links it to the skills that are required by an effective project manager. the project manager is often responsible for managing several projects concurrently. 2. of course. In the case of very large projects. It would take too long if all communications. In traditional organisations. But different kinds of project call for different kinds of project manager.Module 2 / Individual and Team Issues within the existing workforce. influence and authority tend to flow vertically down from the top to the bottom of the organisation. superimposed on the organisation. The project manager’s role is by its nature a temporary one. from them down their hierarchical chain to the relevant subordinates. a project manager who is good at managing newproduct development projects within a pharmaceutical company is likely to have a degree of specialist knowledge and skills that is different from that required to successfully manage construction projects. The reasons for this development will become self-evident as you work through this module. For example. it has become relatively common for large organisations to use project management assignments as a means of developing future general managers.

Given the project manager’s ultimate responsibility for the project’s outcome. the assistance of the project sponsor(s) will be sought. budgets. This disparity between responsibility and authority can be highly frustrating and means that the project manager must rely on other forms of influence. This ability to focus within the overview ensures that people and resources are obtained and utilised in an integrated way – including reorganising to overcome problems and difficulties that will inevitably arise from time to time – in order to accomplish the project’s goals and objectives. To do this.2. as shown in Figure 2. Hence.Module 2 / Individual and Team Issues isational lines and frequently have few direct subordinates. but often do not have the official authority to give direct orders to the people who must carry out the work as a result of these decisions.3 The Central Position of the Project Manager The project manager’s post lies at the centre of the principles of project management. departmental. if the project manager cannot secure the necessary co-operation within the organisation. organisational and geographical boundaries – a good training ground indeed for future senior managers. schedules. objectives and policies. perhaps the biggest single issue faced by project managers arises because they have the authority to make decisions about project priorities. the project manager occupies a central position relating to communications between the various people and organisations involved.1. It is therefore important when appointing project sponsors to choose people of sufficient seniority within the organisation. Competency Professionalism Reputation Skill Interpersonal skills Alliances Project manager Functional managers Figure 2. Projects sometimes require resources from a range of external organisations that may be locally or globally based. 2. much like a spider at the centre of a web.1 Sources of influence for the project manager Ultimately. the project manager may be responsible for managing across functional. a key ability is to be able to focus on issues in detail while at the same time keeping a clear view of the project as a whole. 2/6 Edinburgh Business School Project Management . Therefore.2. That influence may be applied directly to individuals or through other managers within the organisation.

2. organising and selecting the project team. from technical skills to leadership skills. monitoring and controlling the project status.Module 2 / Individual and Team Issues This central position results in the project manager being responsible for receiving and issuing more information than anyone else on the project. finding the solutions to problems. negotiating with suppliers and clients. in the case of large complex projects. In essence. within the agreed cost limit. managing the project resources.4 The Role of Project Manager The primary requirements of the project manager’s role can be summarised as: • • • • • • • • • planning the project activities. in practice. from diplomacy to single-minded determination. Such is the volume of communications required that. The project manager needs to have both the intellect to devise the project strategy and the diligence to ensure that actions are taken. The project manager directs the project and its people towards these ends. These include delivering the project: • • • Project Management within the agreed time limit. The requirements above have to be carried out within the overall success or failure criteria established for the project as a whole. This requires the energy and ability to motivate staff to achieve the project goals 2.2. both to the required standards and on time. These communications are intended to ensure that all those involved. the project manager also has responsibility for influencing decisions relating to the well-being of the project. Where there is no direct authority. the project manager will use many different skills. the organisation and all other interested parties. In part. These roles are intrinsically linked and cannot be regarded in isolation. ranging from entrepreneurship to large-company politics. In meeting the above requirements. at times the project manager’s job can feel like being that of merely a highly paid messenger. this is also because the project manager is the primary decision-maker on the project and the main link with the organisation itself on project matters. the role calls for skilled and competent generalists who. planning the project activities depends on the characteristics of the project team. The time that has to be allowed for a given activity depends on the resources available when staffing the project team. Edinburgh Business School 2/7 . resolving conflicts. individuals and organisations alike. must also be very high achievers with strong communications and interpersonal skills. For example. interfacing with the client. identifying issues and problem areas. understand what is required of them at all stages of the project as it unfolds. to at least the minimum quality standards laid down. schedules and budgets.

2. Creeping scope occurs because there is a tendency for clients or their advisors to change the scope as their perceptions change while the project is being executed. It determines what is and. Any changes. Time. Cost.2 Project objectives The agreed project scope defines the limits of the project. the pressure to go back and introduce new design requirements often becomes very great. For example. during the detailed design phase it is not unusual for designers to find things that they have missed. It can in turn result in revision to the time and/or cost estimates. The project manager role includes ensuring that only changes in scope agreed to by the client are authorised or contracted for. time and quality standards are established based on the agreed scope before the project commences. cost and quality problems Time limit Limits defined by organisation strategy and scope Cost Time Cost limit Time and quality problems Quality Window of acceptable outcomes Quality limit Figure 2. in compliance with the strategic plan of the organisation. and possible compromises in quality standards if required to stay within the original parameters for the other two. equally importantly. what is not part of the project. Anyone who has employed an architect to design a family house will understand the phenomenon only too well. As clients circulate design reports and receive more and more feedback from the various stakeholders. usually impact on one or more of these. or additional things that would be good to include. frequently referred to as project creep.Module 2 / Individual and Team Issues • • • to the satisfaction of the client. The 2/8 Edinburgh Business School Project Management . within the agreed scope. These objectives are sometimes summarised as shown in Figure 2. This phenomenon of ‘creeping scope’ can lead to the expansion of the original project beyond the original limits.

These result in revised designs. be a good time manager. be prepared to generalise rather than (always) specialise. additional costs and so on. be able to concentrate on more than one thing at a time. part of the role involves navigating or controlling the boundaries between the project and functional teams/departments within the organisation (see Module 4). The project manager has to cross this boundary every day. It is but one example of project creep or creeping scope. In order to be able to develop an interface management system and use it effectively. Generally. In achieving this. the control situation changes. demonstrate initiative. a project manager has to bring both management and technical skills to the role. with the system for control and delivery being known as the interface management system (IMS). be a good planner and implementer. The very important role can often also be referred to as the process of managing the organisational interfaces. Managerial and Leadership Skills The project manager may be in charge of one or more projects. be a good communicator. Therefore. be persuasive. This change in situation includes changes in authority. As attempted control crosses the various boundaries. This role is sometimes referred to as interface management. communication and accountability links. Interface management maintains a balance between managerial and technical functions. Edinburgh Business School 2/9 . Their operation and objectives have to be compatible with the operation and objectives of the organisation as a whole. be able to keep multiple objectives in sight and be able to balance them. find solutions and make sure that they work. be good at negotiating and influencing (rather than arguing or giving orders). be able to identify problems. each member of the family will have ideas on things that could be altered or added in some way.Module 2 / Individual and Team Issues architect will prepare an original design based on some broad parameters of size and cost. the project manager should • • • • • • • • • • • • • Project Management be flexible and adaptable. be diplomatic. the project manager needs to apply the full range of traditional management skills in addition to having a detailed technical knowledge of the project itself. in terms of ‘soft’ management skills and attributes. Personal. Once the family receives the initial designs. it can be difficult to control project creep. be well organised. Interface management is the control procedure that allows the project manager to work simultaneously across several different authority boundaries within the system. Because the project manager in charge of the project has relatively little authority within the formal functional structure of the organisation.

particularly where the functional role is being carried out to a very high standard.5 Selecting the Project Manager For internal projects (see Module 4). In addition. There are a number of problems surrounding this route. Typical ‘harder’ characteristics include • • • • • • understanding how to set up a team and run it. in most cases the project manager also needs to have a detailed business and financial knowledge. One thing it cannot and should not attempt to do is have one manager act as both project manager for a major project and also continue in a functional management role. It is not possible fully to appreciate the inputs of the various designers. project managers are responsible for investment appraisal and financial analysis of projects. active interest in training and development. suppliers and contractors without this knowledge. Increasingly. the project manager is usually selected from the ranks of functional managers or staff.2. There is an increasing number of private practices that are offering professional project management commissions as part of their portfolio of professional services. This has the obvious disadvantage that the project manager is not used to the organisation and there will therefore be a learning curve involved. Little. Apart from the fact that both roles are likely to be demanding. 2. ability to translate business strategy into project objectives. This can be put to good use in the project management position.Module 2 / Individual and Team Issues Technical and Business Skills The project manager also has to possess a range of technical and business skills. the project manager does not owe any particular allegiance to the organisation and there may therefore be scope for some disparity of interest. The internally appointed project manager is likely to know the key players and also have established some sort of relationship with them. as this will have been gained while a line manager. The organisation may be reluctant to release a good functional manager because of difficulty in finding a replacement. Such a person will be familiar with the technology and bring credibility built up during performance of the functional role. A good functional manager with the skills required for project management is by far the best option because of the understanding of the industry and the organisation that is brought to the post. they may also be conflicting and hence could not be fulfilled effectively at the same time. a project manager who is in charge of a large and complex project to install a new production line has to have an extensive knowledge of the mechanics of the production system. time will be required to develop an understanding of the organisation and how it works. 2/10 Edinburgh Business School Project Management . the ability to develop complex time and cost plans and achieve them. purchasing and personnel. Technical skills are necessary in order to understand the detailed components of the project. procurement. For example. understanding of the technology that is central to project success. if any. The other primary alternative is for the project manager to be an external consultant.2. In addition. understanding of contracts.

Module 2 / Individual and Team Issues The concept of internal and external project-management organisational structures is explored more fully in Module 4. safety standards. controlling. The main issue with this route is around the area of technical competence. project management training is included by an ever-growing number of organisations in their management development programmes. team building.2.3 Some Essential Project Manager Requirements Introduction An effective project manager needs to be able to execute a number of primary functions. In Europe and the USA. cost limits. life-cycle leadership. the pace of change is so fast that multiple projects will be under way at any one time. The objectives are typical project success criteria. Project Management Edinburgh Business School 2/11 .1 Project management uses these functions in order to execute specific projects that are subject to: • • • • time constraints. 2. this makes specialist project managers advantageous. including project management. In many organisations. The project manager must have a reasonable command of: • • • • • • • • project planning. 2. Let us consider each function in turn.3. directing. quality specifications. Demand has become sufficiently large that an increasing number of postgraduate degree and business school courses in pure or applied project management are being offered. It demands some skills that are very different to those of the normal functional manager. From a project point of view. team organising. These primary functions are applicable to all areas of management. authorising. This has led to a growing tendency towards project management (as part of either an internal or an external system) as a career in its own right. leadership. It is easy to lose the respect of the project team if the project manager either does not understand the technology or makes technical errors. There were nearly 50 such courses as first or second degree level in the UK by 2001.2.

the project manager has responsibility for planning and establishing both individual and team authority and the communication relationships necessary for the project organisational system to function effectively. individual important activities. if a severalstorey-high building requires an elevator to convey people between the various floors and this has been omitted. the level of planning activity usually reduces substantially. dates. different projects tend to develop different authority relationships. This can be a complex process in project management systems. or outside the company itself (external environment). Responsibilities would include such detail as responsibility for: 2/12 Edinburgh Business School Project Management . As the project progresses and is being implemented.Module 2 / Individual and Team Issues 2. which is likely to be the more costly: (a) discovering and planning for this at the early design stage. general responsibilities. and operate within complex and changing environmental conditions. A TRM typically shows: • • • • • key milestones. The environmental conditions impacting on the project can arise from outside the project but within the organisation (internal environment).3. The usual method of defining authority linkages is through a task responsibility matrix (TRM). and how they are to be related to each other. and the project itself will also be evolving. Hence someone working on two projects. Technical planning will be required for project time planning and control (see Module 5). could be working within two different authority networks. specific responsibilities. In terms of organisational and resourcing issues. Traditional functional management systems tend to be fairly static and authority relationships can be clearly defined. Errors or omissions discovered during the initial planning stages are usually relatively inexpensive to rectify. Many different planning applications will be involved. even within the same organisation. cost planning and control (see Module 6) and quality management (see Module 7). For example. These environments are changing constantly.2. planning covers the activities to be accomplished and the sequence in which they are to be executed. project management systems tend to be relatively complex. In addition. As a result. have a far shorter life span. or (b) trying to rectify and incorporate this into a building when the construction is almost complete? The second will obviously be much more expensive and likely to cause very high cost and timetable overruns. Planning activity is at its greatest during the early stages of a project. Errors or omissions discovered in the later implementation stages can be very expensive to rectify.2 Project Planning Planning is usually the first stage of any project and is one of its most critical. By comparison. Planning authority relationships is about deciding what individuals and groups are authorised to do on behalf of the project.

1 TRM extract Person A Inception report Feasibility report Outline proposals Scheme design report O. any delay by person B will have an impact on persons A. second. The TRM should therefore show individual submission dates for activities as well as individual responsibilities. The intersections on the matrix defines the responsibilities of individuals or groups. This section concentrates on the first of these concerns. The table further indicates that person A is responsible for all reports up to outline proposals stage. preparation. a satisfactory TRM can be developed using a standard spreadsheet. ‘A’ indicates an authority for authorising the contents of the reports prior to submission to the client. authorising. The new specialist software can create links between the computer systems automatically. Project Management Edinburgh Business School 2/13 . On one axis is a list of activities and/or outputs required. C. I O. In most cases.1). who is also responsible for checking and authorising reports at this level. I I Person B I I I O. making and input. and is increasingly being used. I Person C I I I I Person D C I I I Person E A A A O. ‘C’ indicates a responsibility for checking the report. and E. On the other axis is a list of the various individuals or groups involved in delivering the activities or outputs. Higher-level reports are organised by person E.1. I O. However. In practice.Module 2 / Individual and Team Issues • • • • • approval. where the individual concerned has a responsibility to make a defined input to the stated design stage report. For example.3. Specialist software has recently been developed. A ‘I’ indicates Input. a working TRM would also clearly show dates for individual actions. This linkage is highly desirable because a change in one part of the system has to carried on to all other parts of the system that are affected. checking. determining how much of their authority to delegate to others involved in delivering the project. accumulating sufficient authority to get the job done. D.2. in the matrix of Table 2. The individual dates for specific actions can either be added manually or by linking the TRM to the appropriate project planning and control software. This is carried out for all activities/outputs throughout the project life cycle. Table 2. A project TRM has two axes (see Table 2. ‘O’ indicates responsibility for organising reports. to generate and maintain project TRMs.3 Authorising Project managers are interested in authority from two perspectives: first. reports have to be produced by a certain date. 2. and.

It is essential that the project manager can demonstrate authority across the various project.3. both internally and externally. Project managers are in a unique position because they have to operate within the constraints of the ‘project management chair’ (see section 4. 2. and yet the project manager has to use functional elements within the project team. particularly if they believe that any changes might 2/14 Edinburgh Business School Project Management . both these individuals may have equal authority over certain project team members.2. The project manager has to determine what is required and when it is required in order to resource the project. formally or informally. This also generates the need for a senior level of project sponsor with sufficient authority to overcome any impasse that may arise between the project and functional managers. Authority is a type of ability to control and direct that is delegated from higher levels in the organisation. Officially. Their strong matrix structure. both in sequence and in parallel. the higher the risk of project failure and its consequences. For example.2. Authority is the means by which the project manager controls and channels all the various activities that have to occur. functional and organisational boundaries that exist. Given simultaneous but mutually exclusive demands from the project and functional managers. in matrix structures. can cause real authority problems.4). The larger these are. This is an example of equal authority – both have authority to direct the subordinate’s efforts – but differing power. Authority is a key project-management characteristic. The most obvious one relates to the peer equality of the project manager and the functional manager. who is likely to be responded to? In such cases the functional manager’s demands are more likely to be met.2. This requires the project manager to enter. Project management is a special condition in terms of organisational authority. Generally.Module 2 / Individual and Team Issues Project management organisational structures are characteristically complex (see Module 4). Authority is not the same as power. In practice. The project manager does not have authority over the functional manager. it is generally accepted that the project manager should be delegated more authority than is immediately required for the execution of the project.4 Team Organising The project manager is responsible for organising how the work is to be executed. But the project manager may not be the only manager interested in this. Others at various levels and functions within the organisation will also have opinions and may seek to gather senior management support for their views. is given to an individual by subordinates at lower levels. The project manager then bids and negotiates with the functional managers in order to secure the necessary commitment and resources for the project. in contrast. consider an individual whose future rewards or career depends on promotion within the functional structure. the level of authority granted to a project manager should be in direct relation to the size and complexity of the project. into authority negotiations with functional managers. power. This includes devising the organisational structures and team-management approaches to support the project. so that the collective efforts are channelled towards developing the project. coupled with the high degree of interdependency that is characteristic of project management systems.

Module 2 / Individual and Team Issues impact adversely on their areas of responsibility. A good example would be an automobile manufacturing production line: the process is highly complex and automated and there is virtually no flexibility or potential for deviations within it. management is the process that is executed in order to meet some form of organisational objective or group of organisational goals. by the managers’ views or philosophies about how their organisation works and should be structured. By understanding the viewpoints of the various stakeholders. Empirical theory would be applicable where a new process is being set up for the first time by an organisation in circumstances but where other organisations Edinburgh Business School • Project Management 2/15 . at least in part. In classical theory. The operatives can still make mistakes or deviate from the prescribed sub-process. It is still applicable to some extent in large-scale. particularly with regard to the aims and objectives for particular parts of the organisation. The end result is that managerial skill and organisational efficiency can be predicted and estimated by observing various management and organisational processes. there is little requirement for tactical organisation as there is little flexibility within the system. Under empirical theory. These views may differ from those of the project manager. and are usually some combination of these. • Classical theory. One way of identifying the dominant prevailing philosophies is to contrast the current practices with the main views on organisational procedures. repetitive manufacturing processes. there are basic and essential similarities between the systems and processes adopted by organisations. The idea is that if enough observations are carried out. Under the classical or traditional view. in order to develop an appropriate structure and management approach that will gain the commitment and support of the other managers. but the scope for doing so is very restricted. it is useful if the project manager has an understanding of both the politics of the organisation and how this is expressed in the present organisation structures and team management approaches. Most emphasis is placed on the produced goods or services. the project manager is more likely to be able to devise ways to gain the support of the key managers. Classical theory was predominant from the start of the Industrial Revolution until comparatively recently. Empirical theory and research is based on observation and interpretation. the correct process or approach will materialise from the sample and data set. Any unilateral attempt to impose a philosophy that is different from that prevailing is likely to meet with strong resistance and may be doomed to failure. The main characteristics of these are considered below. Empirical theory. Thus. The current modes of organisation and working are likely to be determined. the people involved in the process are simply components of a production process. The process is so regulated at each stage that the individual operatives become absorbed into it and often act as little more than components. tactical or operational. The goals could be strategic. there is virtually no requirement for project management as the process is self-regulating.

This is logical. This is one of the basic underlying theories of total quality management (see Module 7). Any organisation that decides to develop a train operating system will be faced with the same series of factors to consider. An individual might be very highly motivated and contribute a great deal because of an expectation that these efforts will secure a longer-term reward.6. As the social characteristics of the organisation change. The social system school considers the social characteristics of an organisation and of its component individuals. A review of the train operating companies in the UK will reveal that they have all tended to evolve into a similar basic structure. The human relations school considers the interpersonal relationship between people and their work. This occurs because of changes in the people who make up the organisation: some people leave and new people join. These will include the purchase and maintenance of rolling stock.2). staff. deals with infrastructure providers. government regulation. Empirical theory is based on the idea that these natural evolutionary processes can be traced and predicted for individual organisations. more or less. so there is a need for the social characteristics of the individuals who make up that organisation to change. contingencies. There are two main schools within behavioural theory. Organisations also evolve and change because of associated changes that occur within the organisational system and as a result of external Edinburgh Business School Project Management 2/16 . this area suggests that there are intrinsic links between the behaviour of individuals and the behaviour of the organisation as a whole. A simple example would include profit sharing. This best way will naturally evolve from the process. It is obviously desirable to link the objectives of individuals with those of the organisation as a whole where possible. Under this approach. All organisations evolve and change. and it should be reflected. More complex examples would include expectancy theory behaviour (see section 2. An example of this could be a section leader attempting to increase productivity in the expectation of promotion in recognition of the achievement. and so on. individuals can be encouraged to contribute more to the organisation by linking the goals of the organisation with the expectations of the individual. Alternatively.3. and be ideally placed to secure this position as a result of the increased efforts. The ideal solution is to match organisational and individual goals and objectives. There will generally be a range of good ways for organising and running any particular process. Essentially. • Behavioural theory. across all organisations that are active in the process. where employees are given a direct share in the profitability of the organisation or section that they work for. but there may only be a single best way. and it is analogous to cars evolving into the same basic design concept even though there will be individual specialisations.Module 2 / Individual and Team Issues have already been using that process for some time. One example could be companies that operate trains. the individual might foresee the creation of a new higher level post resulting from the increase in output.

The organisation might make an arbitrary decision that all employees must refrain from smoking at work. This may be justified on moral grounds or in the interests of health and safety. Systems models can be applied to management and organisations. and outputs can be considered separately as component parts of the whole. The regulations require building designers to consider in detail the health and safety aspects of their design. The inputs. Organisations can be observed and modelled. and may involve whole working practices and processes. There are numerous examples of this kind of parallel organisational and individual change. This can involve long-term risk assessments. people. Decision theory is based on the concept that management and organisations can be studied mathematically. and each stage in the production process can be characterised separately. money. as an example. The changes may go beyond attitudes and objectives. All organisational systems have inputs (for example. Such fundamental changes in working practice and design considerations tend to lead to a complete change in social attitudes towards health and safety within design practices. social attitudes will change very quickly.Module 2 / Individual and Team Issues influences. The organisation can be characterised by the throughput of resources. These regulations impose strict health and safety obligations on. so the people that work within them have to change. some form of processing. Attitudes to work and individual aims and objectives may have to change as the organisation evolves. Project Management Edinburgh Business School 2/17 . and the models can then be used to interpolate and predict organisational efficiency in other organisations. and the social system involving ‘smoking’ within the work environment will fundamentally alter. and an output (usually goods and/or services). designers of buildings. and so on). For example. machinery and equipment. Another example might be new legislation from central government. The approaches developed under classical theory – typified by one right way of doing things and few degrees of freedom in carrying out the work – are not likely to be easily accepted by the staff. • Systems management theory. It is clear that managers who subscribe mainly to the views of any particular theory could be resistant to the introduction of any approaches or structures that are derived from one of the others. Once this policy is in place. both in terms of the building process and during the subsequent long-term use of the construction. processes. A fairly recent example in the UK is the Construction Design and Management Regulations 1994. An example of an internally driven change would be a voluntary ban on smoking in the workplace. risk evaluation and the compilation of risk registers (see Module 3). As organisations change. Decision theory makes use of management science and operational research techniques. consider a project to enhance the productivity of a creative organisation such as an advertising consultancy. • Decision theory.

3). project organisational breakdown structure. authority links.2. However. behavioural and empirical theory. Once this has been decided. It is sometimes known as ‘first meeting’. where possible. This essential difference in viewpoint results from the characteristics of the managers’ responsibilities. of course.5 Controlling 2/18 Edinburgh Business School Project Management . they tend to see project-team members much more as functional units than functional managers do. To some extent. the greatest organisational development requirement occurs during the earliest stages of the project.3.3. the eventual project success or failure is all that really matters. project task responsibility matrix. However.2. project programme. qualifications. favouring decision theory and systems management. The project manager has to review the available resources and to decide on an appropriate organisational structure as early as possible. in particular. the project manager has to be a kind of social engineer with the ability to understand how the overall organisation works. The project manager has to take a number of different people with different backgrounds. experience etc. whereas project managers tend towards a more scientific and analytical approach. Organisational development skills depend heavily on team-building skills (see section 2. to suit the requirements of the project. information configuration management system (see Module 7). and how the various project teams function within this overall organisation. Project managers tend to be concerned with the development of small multidisciplinary teams with short life spans. and to work on relatively complex projects. not possible to define which theories would be applicable to any given organisation. The project manager also has to be able to engineer the organisation. 2. or TRM. Typical items that would be communicated and agreed at the first meeting would be: • • • • • • • individual responsibilities. They tend to see things in more analytical terms. As far as the project manager is concerned. managers within traditional functional structures tend to favour classical. Establishing a successful multidisciplinary team is a major undertaking (see section 2.3.Module 2 / Individual and Team Issues It is. and weld them into a team. usually by arranging a team meeting at which to announce this decision and discuss its implications. it is communicated to the project team. Project managers tend to be heavily involved in operational techniques such as project planning and control (see Module 5) and cost planning and control (see Module 6).7). The function of organising has to be carried out throughout the life cycle of the project. or OBS. communication links. Individual project-team members might only be assigned to a project for relatively short periods and are therefore not of great individual importance to the project itself (provided that the necessary planning and monitoring controls are in place).

in outline. so bonus payments increase up to some maximum level. For a high-quality defence contract. and consideration of any alternative options for appropriate corrective action. • Targeting. But. A manufacturer might set three different levels of defect rates for assembly workers. This is all done with the intention of achieving the project goals and objectives that were established at the outset. The measurement of the extent to which actual progress is achieving targeted progress. and initiating corrective action where the actual performance deviates too far from that desired. it is necessary to consider the different levels of desirability of specific target options. It looks at variances between planned and actual events and uses these as the basis for some kind of corrective action. controlling involves the project manager being responsible for establishing desired targets for performance. this will increase costs and reduce productivity. This can be dangerous if it is the only approach used. This includes the identification and isolation of areas where progress is not being made in accordance with the overall project plan. In deciding which to choose. measuring actual performance against the targets. As the defect rate falls. It is important to use variance analysis in conjunction with a system for Edinburgh Business School • • Project Management 2/19 . mass-produced components for television production could be targeted more towards low cost with lesser quality. such as by the use of earned value analysis (see Module 6) or informal. such as by an indirect appreciation and evaluation of progress. Most forms of evaluation are based on some kind of variance analysis (see Module 6). By way of contrast. 6 and 7. For example. Variance analysis is a retrospective tool.Module 2 / Individual and Team Issues Controlling is considered in more detail for the time. as set out next. cost and quality elements in modules 5. These targets should correspond and be aligned with the stated success and failure criteria for the project and its sub-components. Targets can also be established at different levels. Measuring. the quality of the components could be critical and a very detailed series of checks may be necessary at all stages of production. In the latter case. Controlling is essentially a four-stage process. Evaluating. This could be formal. A company that manufactures electrical components is likely to have targets for cost. output and quality. As such. There is a wide range of possible targets that could be set for each individual element. different failure or rejection rates might be regarded as acceptable in relation to the overall final cost of the component. it looks at past events and uses them as a measure of current efficiency. This involves establishing some kind of workable and achievable target or series of targets. The targets can be set for individuals or groups as appropriate. these targets could vary depending on the type of component and end customer.

puts a programme in place for correcting them. This allows the project manager to initiate corrective actions. • Correcting. It covers numerous aspects. measuring and evaluating performance is to produce data that can be used as the basis for corrective action. This includes implementing the proposed corrective actions for reducing or eliminating the effects of deviations from target. Typical directing activities in project management include those set out next. Correcting is certainly one of the most important management functions of the project manager.2. in cases where this is unavoidable. • Supervision. including setting individual targets. 2/20 Edinburgh Business School Project Management . it also assists the identification of areas where the currently planned actions are likely to result in poor future performance. The whole point of establishing targets. and the definition of individual and group objectives and responsibilities. Equally importantly. personnel evaluation. Training and development are essential in order to ensure that team members remain attuned to the needs of the project. The correction process identifies why the problems are occurring. The evaluation process identifies where problems are occurring. • Team Training and development. This includes ensuring that the project team has sufficient human resources to allow it to function.Module 2 / Individual and Team Issues forecasting or predicting the future. It also involves ensuring that each team member fits into the team as efficiently as possible and (where possible) individuals are compatible and work well together (see section 2. discipline. to reduce the impact on the overall project.3). either to avoid the major problems occurring or. This involves giving tactical guidance to team members at all levels.3. It involves directing other people in order to ensure that their actions are appropriate to achievement of the overall aims and objectives.6 Directing Directing is the process involved in converting organisational goals into reality through the use of organisational and project resources. Project teams develop and evolve in response to team-member and project changes throughout the project life cycle. • Setting up the project team. and then monitors actual and planned correction performance (often called a second-level variance analysis) in order to ensure that any programme of corrections is working. 2. A forecasting system has the advantage of helping to identify areas where past variances are likely to correct themselves without any management intervention being required.

• 2. the initial culture often continues to prevail throughout the life cycle of the project. generally. In order for any team-building process to work. The early stages are perhaps the most critical. These include individual and group reward systems. Co-ordination. there is an ongoing team-building requirement throughout all stages of the project life cycle because people join and leave the project team. The acceptable minimum will vary between teams and projects but. It includes the classification and prioritisation of work in order to ensure that resources are committed in relation to the importance of each individual operation. when compared with the situation in longer life cycle functional teams.Module 2 / Individual and Team Issues • Individual and team motivation. In addition. • Individual and team commitment. but without adequate motivation they will not function effectively. Functional managers might also be directing the same individuals and there is obvious potential for conflict through counter or contradictory direction. Motivation is a highly complex area and can be affected by numerous factors.7 Team Building Team building in a project management context is the process of taking a series of individuals from different functional specialisations and welding them together into a unified project team. Directing in a project team setting is particularly complex because individuals are often assigned simultaneously to both functional and project teams.4). Generally. As mentioned previously. project team members may only be assigned to the project for a relatively short period of time. No matter how the project evolves and how fluid the team remains. The degree to which this desire is met in a team will of course vary. it is the project manager’s responsibility to ensure they work as a team. evaluation and feedback.3. and it may therefore be difficult to establish directional trust and commitment. Although these individuals may belong to a range of organisations.2. for these stages are when the team ‘culture’ or way of doing things is established. it is desirable that team members share the overall aims and objectives of the project. Co-ordination includes the directing of groups and individuals in order to ensure that all actions are being carried out toward achieving the common objectives of the project team and the overall organisation in an efficient and effective manner. It may be easier to develop Edinburgh Business School Project Management 2/21 . there are ten primary sections in any good team-building process. It also involves monitoring resources in order to ensure that functional and project teams avoid conflict wherever possible. Project teams can have excellent resources and back-up. and the project requirements change at the various stages. and the reconciliation of individual and organisational goals (see also section 2. High levels of individual and group motivation are usually essential for the effective functioning of the team. the team members must have a level of commitment.

The pilot therefore has just as much desire to see the plane land safely as everybody else on board. In many cases this is done by aligning individual and project goals so that. as people strive to achieve their own goals and objectives. It is possible to have a highly committed team with very little team spirit. It is also possible to have well developed team spirit but little commitment. For example. it is possible to cite several examples of football matches or other sporting events where a better team has been beaten by an inferior one because the inferior team had better team spirit. In the pilot example. Generally. the various participants all work for different organisations and hence may have different loyalties and responsibilities. commitment can be linked to individual interests and external factors. This sudden new threat to people’s jobs might lead to an increase in commitment within the company. a pilot knows that when landing the aircraft his or her own safety is at as much risk as everybody else on board. In some cases. but they could still be fully committed to working together until the book is finished. In other cases it can be linked to individual and group motivation drivers (see section 2. • Developing a sense of team spirit. For example. Examples of mutual delivery of goals that are not driven by money or other forms of personal benefit would include an airline pilot landing an aircraft and an accident-and-emergency unit doctor performing an emergency medical procedure. a major competitor might suddenly enter the market and an existing company might introduce a project to redefine its production processes and efficiency in order to remain competitive. In yet other cases. attacking spirit etc. In the doctor example. the doctor has chosen to work in the accident and emergency area and is expected to handle any emergency that arises. they also help the company towards its goals and objectives. In an external system. such as bonus payments or profit sharing. This could include desire to win. There is a professional responsibility to do everything necessary and possible to save life. The effects of team spirit are apparent in many project examples. There is no requirement to offer pilots a bonus for every safe landing achieved as it is in their personal interests not to fall below this minimum level of performance. In order to do this. the greater the need for a good team spirit. The team might never actually meet each other or talk directly.Module 2 / Individual and Team Issues collective objectives in an internal project management system where all the individuals in the project work for the same organisation and therefore (at least to some extent) have common objectives. This duality of objectives can be either direct or indirect. An example could be a group of authors assembling a book using internet communications.4). Project managers have to be able to develop commitment in their teams. It is a measure of the motivation of the team and the extent to which its members can work effectively together. Team spirit cannot easily be defined. the more competitive and interactive the project. Team spirit is not the same as commitment. complete commitment to the patient’s interests is paramount. An Edinburgh Business School Project Management 2/22 . commitment has to be ensured through some kind of reward system.

the same project manager may be responsible for a number of different individual projects. Again. it is essential that this is relayed in detail to the project manager so that he or she can re-establish project objectives. most people could cite examples where managers have set an objective and then ‘moved the goalposts’ (criteria) for project success. The project will be one aspect of the organisation’s overall efforts and will feature somewhere within the overall equation that determines the organisation’s strategic management policy. the team also has an appropriate mix of skills. Senior management tend to be happy to see project output increasing. The most common success and failure criteria relate to time. although there could be others. There must also be a set of clear project success and failure criteria. Another common problem area in team building is a lack of clearly defined individual and team goals and success/failure criteria. In such cases. Where this occurs. cost and quality performance. Some managers use projects as a dumping ground for their less capable or less experienced people. In some instances. and these have to be clearly identified in a form that can be quantified and against which project performance can be compared. there could be numerous projects all running at the same time. In large organisations. Inadequate matching between success criteria and resource investment is one of the main reasons why project teams tend to suffer from quality compromises as productivity increases. in addition to the number of people required. and who are working on a project where they resent the team leader or project manager. it is very important that resources are introduced into the system so that increases in workload are matched by resource investment. Edinburgh Business School • • Project Management 2/23 . If there is a strategic change. This applies particularly in systems where team success generates growth. Establishment of clear individual and team goals and success/failure criteria. In such cases. but they often are less happy to invest in the project team in order to allow continued increases in productivity. • Obtaining the necessary project resources. The project team has to operate within the context of the overall organisation. the project team might well contain the required number of people while failing to have the mixture of skills and experience that the work requires. It is also important for the project manager to ensure that. Formalisation of visible senior management support. A common reason for many project teams failing to meet objectives is the lack of necessary resources. the process of securing necessary increases in resources to support individual projects can become a complex issue.Module 2 / Individual and Team Issues example could be a group of experienced team players who are also friends. There are many reasons why this could occur – for example as organisations strategic objectives evolve and change.

Development of open formal and informal communications. Team members have different skills and abilities. This provides them with a direct sense of how the project is progressing and of the priorities and concerns at all stages of the project life cycle. bad feeling will arise because some people appear to be working harder and making a bigger contribution than others. and to ensure these are resolved. Leading providers of project management systems are well aware of the large unfilled demand for improved communications and have been developing communication-management and configurationmanagement systems to meet the complex requirements of project management. effective communication systems are one of the most neglected areas in most organisations. output and efficiency can be related to communications. The latter is also an important motivator because people usually work better if they feel able to communicate with other people in the system. such as via written reports. The project manager has to be able to lead the team. and of the limitations of current communications methods. Application of reward and retribution systems. In most teams. Some new software packages are now available and it is one of the most rapidly expanding areas of software development in the USA and the UK at present.Module 2 / Individual and Team Issues It is very important. face-to-face meetings and so on. in most systems at one time or another. and in particular with the section heads or managers. This involves many duties and responsibilities. Many people act as if they believe that traditional methods of communicating and organising information. Project managers have been known often to complain about the amount of personal time required in communicating. The project manager will also be expected to take personal ownership of larger problems and issues as they arise. by attending major project-review meetings. This is equally true in project management. This can be achieved by senior staff becoming actively involved with it and concerned for its satisfactory performance – for example. and commitment to overcoming them. memos. The success of the project will depend on the accuracy of its planning and on the efficiency of its monitoring and control systems. The project team is likely to recognise that these are essential to the success of the overall project and will expect the project manager to take a strong ongoing interest in their development and application. However. that senior management is seen to be backing the project. including some that overlap with other teambuilding headings (such as motivation). In practice. It contributes toward creating strong feelings of team membership in a way that encourages the taking of personal ownership of issues and problems as they arise. are the only ones that are available. The Edinburgh Business School Project Management • • 2/24 . • Demonstration of effective programme leadership. larger teams and more complex projects tend to have greater requirements for good communications. both to the success of the project as an entity and to the perceptions of the project team members.

others may require a collective decision involving all the team members. conflict can take other forms. such as conflict between incompatible design and cost information.3. the project manager must ensure that the conflict does not spiral out of control.2. It covers a wide range of qualities and skills. Some decisions must be referred to senior management and/or the project sponsor for approval. high degrees of sentience and interdependency. and pressure to meet time scales in the face of unexpected problems arising. and the poor performers are checked and reprimanded. Construction project teams. it requires leadership.5. Conflict between incompatible individuals is likely to occur whenever numbers of people are in contact with one another. A common example would be engineers designing pipe runs that cannot fit into the spaces allowed for them by architects. Edinburgh Business School Project Management 2/25 . In groups engaged on creative work. is generally a negative entity and the project manager is responsible for resolving or controlling such conflict. Failure to do this will generally result in a proliferation of bad feeling. whether based on argument and confrontation or on incompatible working practices. In all cases.Module 2 / Individual and Team Issues project manager has to set up monitoring and control systems to make sure that good performers are recognised and rewarded. Conflict arises in most human systems. with consequent effects on motivation and a tendency towards team fragmentation with its associated increase in individualistic behaviours such as ‘every person for themselves’.3. • 2. Leadership as a concept is not easily defined. However. Conflict. it can provide the stimulus toward higher levels of achievement and the emergence of novel solutions. the project manager must gather all the relevant information and then make good decisions or recommendations based on the available information. Development of heterogeneity control and cohesiveness. but the high degree of pressure associated with most projects exacerbates this. Good project managers recognise that sudden changes in energy levels or performance by individuals or groups of people can be a sign of emerging conflict. and these can vary from project to project. Classical leadership traits are as set out next. with their multidisciplinary characteristics. or design of one aspect being unacceptable in terms of the design of associated sections. Even in these cases. However. These issues are discussed in section 2. tend to be particularly prone to conflict. • Decision making ability. not all conflict is bad. The project manager has to be able to make good decisions across a range of different subject areas. If the project team is to work together as one entity.8 Leadership It is obviously essential that the project manager is able to lead the project team effectively. • Identification and management of conflict.

and as a result this may not be a major factor. Integrating new members into established teams is an important skill. Interpersonal skills. The project manager cannot solve every problem personally but can act as a catalyst and focus for the team’s attempt to solve problems. This is also sometimes true during major IT systems development and implementation projects. Some people are good at working with other people and getting them to devote their best efforts to the work at hand. such as major motorway developments. Some people are good at using their persuasive skills to overcome problems and resolve conflicts. In construction projects. power stations. Project teams tend to work on relatively short-term projects. may last for more than ten years and a significant number of staff changes can be expected over the duration of the project. longer-term projects. Project managers with good interpersonal skills are well placed to develop these characteristics within the project team. The project manager has to be able to identify conflict even where it is not immediately obvious. The system has to be flexible enough to allow new members to join. while others find this more difficult. The most successful teams tend to be those where individuals relate very strongly to each other and where there is a high degree of comradeship and trust. Interpersonal skills can be very difficult to quantify. • • • 2/26 Edinburgh Business School Project Management . The project manager provides the problem-solving leadership. The team will need to solve the many problems that will inevitably arise during the project.Module 2 / Individual and Team Issues • Problem-solving ability. and to provide sufficient learning time for new members before they are expected to make a full contribution. or between internal and external team members in the case of a combined project organisational structure. Conflict avoidance and control is a key team-building skill. However. and to take any necessary actions to resolve it. the most common form of conflict is between design team members when objectives or limitations are changed. Ability to integrate new team members. Conflict could arise within the internal team itself. and major tunnels. Ability to identify and manage conflict.

Project Management Edinburgh Business School 2/27 . Effective communication is perhaps the single most powerful leadership and control tool. Interface-management skills. It is only relevant where one person is involved in leading one or more project team(s) through the entire life cycle of a project. In addition. Most forms of management concentrate on a relatively small number of specific phases or stages. horizontally to the functional managers. project management is typically concerned with the complete life cycle of the project rather than just individual stages (such as design or implementation). Second. problem solving etc. and the relative importance of these factors can change over time. Effective communication is a crucial leadership skill. This significantly increases the requirements of the communication system and makes the communication process itself much more complex than in a single-interface system. Different factors affect the performance of the team. In terms of decision making.Module 2 / Individual and Team Issues • Communication skills. the project manager has to be able to apply a range of leadership skills and styles. and downwards to the individual project-team members. project teams are characteristically formed for a specific project and last only until the project is completed. most of the project team members will only operate as part of a specific team for a relatively short period of time. The functioning of the project team will change to meet the different needs and challenges associated with the specific project requirements and environment at each stage of the life cycle. As a result. the project manager could be in charge of a range of external consultants and authorities that all report to different managers.2. The communication requirement is compounded because of the interface management requirement (see below). include numerous life cycle phases between inception and recycling inclusive (see section 2. • • 2. This concept of life cycle leadership is not common to all leadership applications. Factor-balancing skills.3. There is. a need for strongly defined interface management skills as part of the project manager’s leadership effort. The term ‘project’ could. therefore.2). However.5. of course. the project manager has to be able to balance the relative weighting of different factors in order to allow the correct decision to be made. First. The project manager is in the unusual position of working within a three level continuum consisting of reporting upwards to the senior managers or project sponsor. The project manager will have little time in which to gain sufficient knowledge of the project and of the team to be able to lead it. and to choose to apply those that are appropriate to the particular circumstances as the project progresses.9 Life-cycle Leadership Project management is somewhat unique in terms of the way that leadership requirements vary over time.

The non-commissioned officers responsible for training are only concerned with turning out another batch of recruits for the front line. there is very little concern for the aspirations or desires of the recruits. this could include a transition from task-oriented 2/28 Edinburgh Business School Project Management . However. There continues to be a great emphasis on output and productivity.2 Phase 1 2 3 4 Phases of project team leadership Characteristic Inception Development Stabilisation Maturity Task High High Low Low People Low High High Low Effect Telling Persuading Participating Delegating Phase 1 is characterised by high task-related. If the life cycle of the team is considered in terms of four phases. In this sector. Phase 2 is characterised by high task-oriented and high people-oriented leadership. there is a growing trust and understanding between the different levels within the power structure. Thus their leadership requirements. They know that the recruits are inexperienced and there is no attempt at forming NCO–recruit relationships. particularly those between managers and subordinates. People-oriented behaviour relates to the leadership of the individual members of the team and how they work as part of the team. Despite these growing levels of trust and understanding. Task-oriented leadership relates to the tasks itself. This is often the secondary stage of life-cycle team development. relationship behaviour is inappropriate as there is widespread confusion and apprehension among recruits. the employees have still not achieved sufficient maturity to justify unsupervised actions. Phase 3 is characterised by low task-oriented and high people-oriented leadership. as the system has not yet evolved enough to run itself. Table 2. namely what they require from their leaders. the only concern is the output. The need for strong task leadership remains. It is generally possible to consider life cycle leadership in relation to specific phases or stages of development. One possible relationship is that exhibited by task-oriented and people-oriented leadership.6. These are the typical conditions under which employees would enter an organisation.2. low people-related leadership. In most cases. the characteristics of each phase will be as set out in Table 2. An example would be raw recruits entering a boot camp. the immediate aims and objectives of the organisation have been realised and the manager can move on to consider higher-level motivational factors (see Maslow’s hierarchy of needs section 2. In addition. This sector is the stage in the leadership life cycle where the team has stabilised and output is secure. the activities of employees are highly task-oriented and there is only a weak relationship between employees and management. In some cases. including the actual mechanics of the process. change. The longer that employees are employed by the organisation then the more relevant experience they acquire. as the manager–subordinate relationship begins to evolve.Module 2 / Individual and Team Issues Most research suggests that leadership in any organisation has to change in relation to the maturity of the employees. Under such circumstances.2).

Not all teams reach the last stage. the team members will develop such operational skills that they no longer need task-related leadership or instruction from management. and. as everybody understands exactly what is required. As the basic knowledge of the game is developed. Phase 4 is characterised by low task-oriented and low people-oriented leadership. The captain or project manager would therefore have to be operating in high-task and low-relationship mode. This sector tends to be characterised by team members becoming so confident and assured in team output and performance that they no longer need task-oriented direction. Phase 1 represents what is effectively a command process. There will come a point where the team works as efficiently as possible with minimum input from the captain. However. Leadership requirements change with time on most projects. the project manager is allowing the team to participate. it will eventually evolve so that it can be ‘left alone’ to run the project. In phase 2. A group of strangers who have never played football before would have no idea of how to work as a football team (relationship) or how to win the game (task). An example would be a symphony orchestra. Most people who have worked in teams will recognise these basic phases. the project manager is effectively delegating control to the other members of the team. the fact that the team progresses through these definable stages implies that the appropriate leadership style will also have to change. Some become stuck at an intermediate level. the group begins to relax slightly and team relationships begin to develop. but in effect to persuade them. In theory. The transition from high-task low-relationship operation to one that is lowtask and low-relationship is a characteristic of the development of any project team.Module 2 / Individual and Team Issues goals to personal goals. The leadership style that is most appropriate during the early stages of the project may be less appropriate during later stages. and they no longer need people-relationship leadership or instruction. As skills and understanding develop further. The manager would be most concerned with giving orders and explanations in order to give the group a basic understanding of the rules of the game. the team begins to gel and the captain no longer needs to provide any significant task input. such as developing the trust and understanding of the other members of the project team. if the team has enough time. In phase 3. the project manager in this phase is simply telling the team members what to do. The conductor could be suddenly removed without making any immediate difference to the immediate efficiency and operational capability of the team. leaving them in charge to get on with it. the team can operate without direct leadership or direction. At this level. ♦ Time Out Example on life-cycle leadership: relationship and task considerations. in phase 4. Project Management Edinburgh Business School 2/29 . The two most important determinants of leadership style in relation to the life cycle are relationship and task factors. If the team lasts long enough. the action is no longer to tell them.

a packaging redesign or product launch would be the responsibility of the marketing department. but would require substantial input and support from the finance department. The concept of project teams. The organisation itself may 2/30 Edinburgh Business School Project Management . This is discussed in more detail in Module 4. it could be supervised by the finance department with substantial inputs from the IT department. These are all relatively easy projects to place within this structure.3 shows a typical organisational structure for a mediumsized manufacturing company and some of the areas of responsibility within each functional discipline. At the other end of the spectrum. Other examples would include a university setting up a new combined studies course. the pure project organisation exists solely for the purpose of the project or for a group of projects.2 Project Teams within Functional Organisations Most projects are carried out within traditional organisations designed along functional lines. whereas a project to install a new company financial system may be supervised by the IT department.3. These can have an important impact on team cohesiveness and therefore on the team building process in general. Project teams are established within the existing system. or a police authority putting together an inquiry section. a project manager needs the support of an appropriate project management team. using resources from within one functional department or across several functional departments. This section considers briefly how internal project teams can be established within existing organisations.3 2. It is therefore necessary to understand the main characteristics of project teams.3. It then goes on to address briefly some important team issues. Projects undertaken in this environment would be allocated to the most appropriate department. including the effects of multidisciplinary team membership and related heterogeneity issues. Alternatively.Module 2 / Individual and Team Issues Questions: • • • Do all project teams evolve at the same rate? Why do some football teams develop better and more quickly than others? How important is the captain? ♦ 2. For example. Both would require the participation of specialists from a number of different specialist sections. 2. Figure 2. A project to employ more mature people or carry out a training needs analysis would be done by the human resources department. To be effective.1 The Project Team Introduction The text so far has considered the typical roles and responsibilities of the project manager together with selection considerations and key skills. and how they can fit into larger organisational structures is covered in more detail in Module 4.

but the parent company may look after administrative functions such as paying the salaries of the project team members or preparing the accounts. be broken up upon completion of the project in much the same way as a project team will be broken up. Figure 2. This type of organisation may be created as a standalone subsidiary or satellite of a parent organisation. This arrangement could be used for a large one-off project split into different project areas. projects where project team members have responsibility solely for the project. there could be a project manager in charge of construction. Many project organisations have total freedom to organise themselves according to their own preferences but within the limits of final accountability. In most project management applications. Shaded areas show functional orientation.4 shows a typical project organisation structure.3 Typical functional organisation for a manufacturing company Note: some sections omitted for clarity. Whereas most projects within the functional organisation would tend to be internal projects for the sole benefit of the organisation itself. It is set up specifically to deliver projects and could be linked to the parent company by a reporting system.Module 2 / Individual and Team Issues Board of directors Managing Director HR Director Marketing Director Sales Operations Director Financial Director Salaries IT Director Support Advertising Payments Updates Packaging Invoicing Promotions Cost control Figure 2.4. and another in charge of exhibits. while others have functional support assigned to them by their parent company. the project organisation may have total responsibility and authority for the design of a new product. using the structure shown in Figure 2. Again using the example of the Millennium Dome. one-off. For example. For example. project teams are set up within Project Management Edinburgh Business School 2/31 . the project organisation is most often set up to deliver a project for an external client or customer. Pure project organisations tend to exist for relatively large. the Millennium Dome Development Company in the UK was set up specifically for the purpose of building and operating the Millennium Dome for a finite period.

Making use of internal project team members is often less costly than employing a series of external consultants to provide the same service. There are numerous advantages associated with operating project teams within functional organisations. The disadvantages associated with running project teams within an existing functional organisation include the following: 2/32 Edinburgh Business School Project Management . Although projects carried out in this environment may be strategically important to the organisation. They are likely to be developmental in nature and would tend to be projects to improve systems. Experts working together can create new synergies that cannot evolve in the rigid functional structure. methods or products. Board of directors Managing Director Program Manager Project manager Marketing Director Marketing input Marketing input Operations Director Operations input Operations input Financial Director Financial input Financial input IT Director IT input IT input Figure 2.Module 2 / Individual and Team Issues existing functional organisational groups and therefore lie somewhere between the pure functional and pure project extremes. Employees working on projects are not prevented from following their primary career path within the function. and they would tend to be internal projects for the benefit of the organisation’s effectiveness. Individual experts can share their expertise across a number of different projects. procedures. they are highly unlikely to be the reason for its existence. Shaded areas show project orientation. These include the following: • • • • • • • • The structure provides excellent flexibility and full use of employees.4 Typical project organisation structure Note: some sections omitted for clarity. The overall team and cross-functional working attitude of employees is improved. Employees are given the opportunity to gain new experience and to develop new skills. Project membership offers new potential career paths within the organisation.

3. For example. where an input is required from a number of individuals or sections before the process or system can move past a milestone or project gateway and onto its next phase.3 Team Multi-disciplinary and Heterogeneity Issues Project teams may operate as individual units within existing functionally structured organisations. while surveyors will tend to seek a cost-based solution. Interdependency is the tendency for teams to depend on inputs from more than one individual in order for the whole system to develop.Module 2 / Individual and Team Issues • • • • • • The function continues to operate as normal despite being depleted of resources (at least to some extent) by the project. Differentiation (specialism) contributes to sentience and causes teams to fragment. 2. There are often communication buffers and bureaucratic layers between projects and senior management while functional units tend to have more clear and longer established communication channels. construction project teams – tend to suffer from high levels of sentience and interdependency. engineers. Systems can feature pooled interdependency. Sentience is the tendency for individuals to identify with their own professions and background rather than with the projects or organisations and their goals. Some types of project teams – for example. Project team members tend to see their project responsibilities as secondary to those of the functional unit. A project manager sometimes has difficulty in ensuring that his project is given the priority and attention that it requires. They often consist of a range of different specialists from different functional departments and it is this multidisciplinary composition that makes them unusual. People who have worked for a long time in a functional environment may have difficulty in adapting to the demands of the project environment. There may also be sequential interdependency or reciprocal interdependency. hence the interdependence. Project Management Edinburgh Business School 2/33 . This can lead to breakdowns in communication among groups of specialists where each group is working on its own particular areas. For example. Motivation can be a problem unless the project is given high profile senior management support. but it may not finally be accepted until it has been costed by a surveyor. The project manager has the task of attempting to blend these specialists into an effective project team. This can become a serious problem where a number of key people are assigned to projects. For example. will tend to seek the ‘best’ engineering solution. and as a result they have definite needs for deliberate team-building activities if they are to perform satisfactorily. Functional managers often try to ‘offload’ their less efficient or productive people to projects in the hope that this will minimise the negative effects on the function. faced with the need to revise a design. because of their training and experience. an architect can design a particular detail. Each functional specialist will have distinct qualifications and experience. The input of both individuals is required before the design can progress to the next stage. where individual sections or divisions make contributions to the whole. Several projects are likely to be running simultaneously within organisations.

The best solution from an engineering point of view might not be the cheapest nor the most cost-effective.Module 2 / Individual and Team Issues an engineer would probably prefer to design a building’s foundations and its frame without having to liaise with the surveyor whose job is to ensure that cost limits are not being exceeded. Integration is simply the process of defining responsibilities and control. An example would be a course team within a university. This is also the case where the project is relatively complex and where a long learning curve is required. Course teams are formally constituted groups of people who work together in 2/34 Edinburgh Business School Project Management . An example of a highly integrated team would be an army special forces team where all the team members work to precise timings. Formal groups are those deliberately created by organisations in pursuit of their goals and objectives. and ensuring everyone adheres to the definition.3. the less chance there is of an overall bias or sentience affecting the operation of the team. Generally. In such cases. A project team is one example of a formal group. the greater the multidisciplinary nature of the team. The greater the range of backgrounds of team members. At the extreme end of this continuum lies the disintegrated team – if indeed it can be called a team at all – where all the participants do what they want and the project objectives are ignored.4 Group and Team Processes Groups are collections of individuals who work together in pursuance of a common objective. the greater is the tendency towards sentience and interdependency. Teams are collections of individuals who work under the direction of a team leader in pursuance of a common objective. Organisations contain many formal and informal groups and there is a tendency for groups and sub-groups to form wherever large numbers of people come together. A highly integrated team is one where everybody knows exactly what they have to do in order to meet the targets. Integration mechanisms are a basic requirement for teams containing highly differentiated individuals or groups. However there is also likely to be much more discussion and conflict. the more likely it is that the group will generate new ideas. and become more efficient at problem solving. make effective use of brainstorming. The extent to which team membership is multidisciplinary appears to affect team performance. A team that is not integrated is one where there are no specific targets and everybody can do more or less what they think is best at any one time. Generally. Whether the members of a team should be homogeneous (of one type) or heterogeneous (many disciplines) depends on the nature of the project that is to be undertaken. and follow highly rehearsed and planned procedures. A team is therefore a specific kind of group. 2. leading to failure to deliver the projects goals and objectives. They are generally created and staffed by the organisation for the benefit of the organisation. highly structured teams tend to develop. the greater the range of team member characteristics and backgrounds. An example of a low level of integration would be a pure research and development laboratory where only very vague time scales and utilisations may be set. frequently to the second.

generate more new ideas and original thoughts. economic. Studies comparing the performance of teams and individuals at problem solving reveal that teams tend to: • • • • • • • brainstorm problems more effectively. Informal groups tend to form quickly and voluntarily. Groups tend to perform better at problem solving than individuals. discuss and consider a wider range of potential solutions and implications. develop an enhanced logic flow. and informal groups that have been set up by the students in response to social considerations. This is probably why humans (and other primates and numerous non-primates) have evolved to work in teams.Module 2 / Individual and Team Issues order to ensure the continued success and development of a particular course. a leader. social and political similarity. solve problems more accurately and quickly. They may elect. Informal groups can be as powerful – sometimes even more so – than formal groups.3) students from the same country or range of countries will naturally tend to associate with each other. Another example of a formal group is a football team. on a university course. Individuals tend to behave and function differently depending on whether they are on their own or are acting as part of a team. they will migrate to their formal work groups. The whole team is working together to try to win the game. and even attitude similarity. It is important that project managers are aware of both the formal and the informal groups that exist within organisations and the constraints/opportunities they present in executing the project. Hence.3. For reasons of sentience (see section 2. The project team is subject to both individual and group behaviours. When required by the module leader. but there are specialist self-directed sub-groups within the team (such as the goalkeeper) who act more or less independently but nevertheless within the overall aims and objectives of the team. An example would be students on a course from a certain country. In lectures. develop better approaches to weighing up the consequences of a range of potential actions. or be assigned. students will tend to sit in their informal groups. consider a wider range of factors. Most university lecturers would be familiar with this group formation process and also with the types of group characteristics that could be expected from any new class of undergraduate or postgraduate students. actual and perceived status. Project Management Edinburgh Business School 2/35 . Informal groups tend to form because of social reasons such as racial and sexual similarity. and they will establish performance criteria that are in line with the aims and objectives of the department. there may be formal work groups that have been set up by the module leader for educational reasons.

a balance of various skills and experience is sought in terms of 2/36 Edinburgh Business School Project Management . most project teams) are good so long as they are established and controlled properly. Generally. the goals and objectives of the individual and the group must be clearly aligned with those of the organisation. Thus. the higher the heterogeneity and cohesiveness of the team.4.Module 2 / Individual and Team Issues 2. this increase in efficiency is at a cost of increased discussion and conflict.2 Project Team Staffing Staffing a project team with competent people is the first stage in a team-building process. The effectiveness of the team performance and the whole team-building evolution will depend on the characteristics of the individual specialists who comprise the team. Numerous internal and external factors can influence the performance level of any project team. the more effective it will become. outlook or a range of other factors that could affect team performance. in order for team heterogeneity and cohesiveness to be useful to the organisation.4 2. monitoring and control. Cohesiveness. the better it will perform. These characteristics will influence the project manager’s choices in a number of areas. 2. However. team and organisation are all compatible. Generally. The strongest single factors in determining a multidisciplinary group’s performance are heterogeneity and cohesiveness. by definition.4. 2. They will consider more information and will brainstorm more effectively. multidisciplinary teams (and hence. how well their personal goals are aligned to the team goals. and to the overall commitment and morale of the team members. the greater the degree of heterogeneity.5 Project Team Performance Team performance is a complex issue. In selecting team members. As with team motivation in general (see section 2. • In general terms. • Heterogeneity. However.1 Project Team Staffing Profile and Operation Introduction This section considers the staffing and profiling of the project team. the more cohesive the team.6) there is no point in developing team commitment and drive unless the goals of the individual. Cohesiveness is a combination of how much the members of the team want to be members. Heterogeneity is the extent to which the team members are unlike each other. the more effective the team will be at solving problems.3. either in terms of qualifications. experience. including organisation structure.

Project Management Edinburgh Business School 2/37 . The project manager would therefore have to consider the ‘trade-off’ between continuity and ability. A lot of different factors will to be considered within this negotiation process. administrative skills. This has obvious advantages and disadvantages (see Module 4). The best employees also tend to be head-hunted by other departments or organisations. special skills. continuity requirements. a particular project manager might secure an adequate supply of services from the best performers at a given point. or somebody less capable for all of the time? What would be the consequences of breaks in continuity? How easily could support staff cover for the highly able people when they are not available? In addition. the characteristics found in a successful project-team staffing process include the following examples. three weeks later the organisation won a new high-prestige contract. If the right calibre of internal people is not available. then senior managers might be persuaded to support the project manager who wants all the best resources for the new high-profile contract. For example. but if.Module 2 / Individual and Team Issues • • • • technical skills. In general. ability. the project manager has to negotiate with the various functional managers in order to secure the people required for the team. This is relevant to the classic internal and external project-management organisational breakdown structures (see Module 4). The project manager does this. but few of them will be available for all of that time. Is it better to get the best person some of the time. At the same time. teamworking skills. In most project management scenarios. the project manager recruits people from different functional teams within the organisation (see Module 4). in its simplest form. say. by assembling some kind of schedule of the resources estimated to be required and then submitting this in the form of a bid or proposal for approval by senior management. it might be necessary to hire an external consultant with the required qualities. For example. management skills. the best people will be in demand by other project managers and competition for their services can be intense. Typical factors for consideration include: • • • • • immediate and long-term availability. and these employees are more likely to be promoted into positions where they are no longer available to work on projects. and it has far-reaching organisational and leadership implications. The project manager may be able to get some of these people for part of the project duration. interpersonal skills. the best people within the organisation will always be in greatest demand. Another factor to consider is the mix of internal and external staff.

Constant change generates a requirement for rapid problem analysis and innovation. for this is important for the motivation of the individual (see section 2. this is frequently not the case! Edinburgh Business School Project Management 2/38 . Project teams are staffed and operated in a less formal manner than functional teams. However. successful project teams can identify new solutions and implement the corresponding processes quickly and effectively. sometimes against their wishes. In addition (depending on the internal status of the project). The project manager is able to choose the most appropriate people subject to any obvious limitations on their availability. project managers usually do not get their entire first choice of team members The project team is staffed in relation to the value of the project. Project teams innovate and evolve. Project teams interface. Functional managers who provide resources for project teams receive recognition or credit when the project team performs well. There is no ‘dead wood’ of the kind that can often be found in functional departments. The project manager should in theory ask individual functional members whether they wanted to join the project team. Project teams are flexible and responsive. This leads to a reduced sense of insulation from ‘outside’ and tends to promote a greater commercial awareness. Project team members therefore know that they have been chosen because their skills and experience are important to the project’s success. They are generally closely integrated with the project team. contractors and suppliers are involved). Functional units tend to operate under conditions that are more stable. Functional teams tend to be more ‘set in their ways’ and find it more difficult to introduce new approaches and processes.6). Project managers tend to work with less rigidly defined authority. the smaller relative size of the project team generates a requirement for smaller and more compact formal and informal communication systems. Projects tend to operate within conditions of constant change and project-team members have to be able to respond to change quickly and efficiently. In addition. Project managers lead by example. people are drafted into project teams. They have to work in this way because of their relationship with the ‘borrowed’ functional resources. Successful project teams can identify new solutions and implement the corresponding processes quickly and effectively. Hence. Because the project is (in organisational terms) small and dynamic. all deals and agreements between project and functional managers in order to ensure that staff are released to the project should be strictly honoured. In addition. in most practical scenarios. Functional managers tend to be more isolated from their team because of the authority systems that form within functional units. They often work across both internal organisational boundaries and across the organisational boundary (where external consultants. In practice. Good project managers can use this adaptability to advantage. the bureaucracy associated with running it tends to be much less than that required by the functional units.Module 2 / Individual and Team Issues • • • • • • • • Staffing is generally voluntary.

changing priorities within the existing functional groupings. The project would identify the individuals required for the project team and make some kind of estimate of when. The idea is that there will inevitably be some conflict within the project team. Sources of conflict should be identified and highlighted as early as possible in the team’s evolutionary process. Questions: What could happen to change the perceived value of the project to the organisation as a whole? Where might a project status change lead to the potential for improved resourcing? ♦ Project Management Edinburgh Business School 2/39 . the more direct input they have and the more power and influence they carry within their parent functional departments. willingness to work on the project. The probability of the project of being allocated the project manager’s first choice of potential project team members depends on a number of factors including: • • • • • • • availability. This may affect several different departments. Individuals would be selected in relation to the demands of the position and current availability. storming. The later that sources of conflict are recognised. they would the required. norming and performing is to be followed (see section 2. In general. A wide range of factors can affect project team staffing. the more damage is likely to have been dome to team cohesiveness and morale. cost per hour of each specialist in relation to the cost limit for the project as a whole. the more senior the person. changes in the perceived value of the project to the organisation. the sooner the storming process begins the better. An IT project manager might be responsible for setting up a project team to programme and run a major changeover in IT equipment and operating systems. and for how long.5. Assuming that the usual team-building process of forming. ♦ Time Out Think about it: staffing the project team. The staffing process can involve a large number of different considerations. but the outcome is crucial to the effective functioning of the project team.4).Module 2 / Individual and Team Issues • There is some research evidence to suggest that conflict should be promoted during the staffing process.

any other interested bodies such as inspectors. but the project office is a place where they can concentrate fully on the needs of the project with less distraction. client personnel are seconded into the contractor’s team.3 Project Team Profile Project Team Mix The project team consists of the group of people contributing to meet the objectives of the project. the resolution process will be made easier. success is best achieved in a good. and where appropriate.4. Even for small projects. the common objective will be less clear. However. 2. If nothing else is mutual. and feel like part of the project team that is located there. It acts as a focal point and gives project team members a base in which they can set down some personal roots. in-house staff. in everyone’s best interests to meet the project objectives in a timely and cost-effective manner. feel comfortable.4. because the project team often contains members from a range of different functional backgrounds. it is useful to have a project office. clients. community groups. Team members may well have their own permanent desk space back in their functional department. With regard to lobby groups and project protesters. it is worth thinking of the project team in the widest possible terms.Module 2 / Individual and Team Issues 2. close-working relationship. subcontractors. and lobby groups. government. This space will be the hub of the project. A project team can consist of two or three people in the case of 2/40 Edinburgh Business School Project Management . the project manager should recognise that the only common goal may be to resolve the conflict.2 Uniqueness of Project Teams It is well established that every project is unique. including: • • • • • contractor’s personnel. 2.3. and thus it could follow that every project team must be unique in order to succeed. The differences between project teams may be marginal or they may be enormous. Often. in the case of the first four groups at least.3.4. Alternatively. the client may establish an office next to a contractor on the project site. This being the case. open. in the case of a project. It is also important to provide an element of focus. If dialogue is open and there is a clear understanding of each point of view. Some team members – for example specialists whose expertise is only required for a particular activity over a short time scale – may have very small parts to play in the project as a whole and probably will not feel like part of the close body of people involved in more active and longer-lasting roles.1 It may not seem like it in practice but it is. and this must be kept in mind as it may be the only negotiating counter available.

They may be male-dominated. it is unlikely that anyone without some knowledge of the industry would be employed in such positions – the primary function in each position is a project management one. There are. and so the team should be flexible and open to temporary members coming in and out whenever their particular expertise is required.5 Typical project management team organisation The skills and expertise of the project management team should cover the main areas of the project. as in many NASA projects. Teams may be all from the same office or they may originate from different companies and work in different geographical locations. although knowledge of the technology underpinning the project is valuable in performing each of these roles – indeed. Thus. They may be full of young people. as in many of the more traditional construction projects. They are effectively the managing director. and should both recognise and explicitly state where this may be weak. or have a good balance. This will draw special attention to that area because any aspect of the project that lacks a competent project management team member supervising and supporting it is in danger of running out of control without the fact being recognised. or they may be a mixture of young and old. They may be made up of highly-skilled technical experts. however. Project Manager Project planner Project cost controller Team supervisor A Team Supervisor B Project team A Project team B Figure 2.5 shows team members Project Management Edinburgh Business School 2/41 . The skills employed must fully reflect the nature of the project. And. project planner. it is sensible to conclude that there is no set skills profile for an effective project team. Looking after particular specialist aspects of the project may not be a full-time job. three specialist project-management positions that need to be filled: • • • project manager. as in many software projects. female-dominated.Module 2 / Individual and Team Issues very small projects. or they may be commerce-oriented with no technical staff. or thousands of people in the case of very large projects. The typical project-team organisation chart shown in Figure 2. project controller. the operations director and the financial director of the business that is the project.

which would be the principle specialist areas of the project. There may need to be a complex trade-off between the conflicting desires of the various stakeholders. 2. Discussion of different personality types and their suitability for working in a team is outside the scope of this module and is well documented elsewhere. is unlikely to be the most effective project team. Once this is done. they will provide a great source of support.Module 2 / Individual and Team Issues looking after individual work aspects. agree and document them. • Work with the stakeholders to determine and state explicitly what their dimensions of success are.4. Edinburgh Business School Project Management 2 2/42 . can be achieved through a stakeholder mapping and management exercise (see Edinburgh Business School Mergers and Acquisitions text). They may be the client. there are behavioural profiles across the team that can increase its chances of effectiveness. It is important to find out what stakeholders’ expectations of success actually are. Use this to establish how good performance could be measured. These include all stakeholders who are members of the extended project team outside the immediate project management team. whether or not it has been successful. some combination of interested individuals and groups. Suffice it to say that a team full of natural leaders. In many cases they may not have articulated these previously and a great deal of effort may be required to describe. • The importance of determining and agreeing criteria for success cannot be overemphasised. Stakeholder identification. • Identify and acknowledge the stakeholders who will determine. When potential team members have been identified with the skills required to tackle the project successfully. members of the project management team or. despite the team’s best efforts. • Stakeholders are sometimes referred to as the ‘invisible team’. Stakeholders management. If managed properly.4 Project Team Operation Reviews of the many teamworking approaches and techniques that claim to enhance the operation of teams by improving team performance and assisting in the development of good team spirit reveal that they share many similar underlying characteristics. Some typical common areas include those set out next: 1 Establishing measurable objectives. and reconciliation with the project and project team. most likely. consideration must be given to whether the various personalities will work together effectively. the team can then focus on meeting the requirements without the fear that. a project sponsor. despite their technical competences. on completion of the project. Most team handbooks identify similar objectives and contain common elements. As with every team. the stakeholders will deem the project a failure because of expectations of which the project team was not aware. It is likely that multiple measures will be required as no single measure can capture the many dimensions involved.

• The rules should be firm.Module 2 / Individual and Team Issues • 3 4 5 Protect the image of the team. with team members supporting each other. Key relationships should be established. and keeping communication lines open. Planning and establishing processes. Done well. the plans should be prepared at different levels (e. • Set realistic and achievable milestones that will act as celebration points throughout the project.g. Leadership. • Plans should be prepared in a manner that is understandable and that can be used in practice by the members of the project team. The attitude or spirit of the team is important in terms of stimulating thought processes and improving decision making. The project team should operate within a flexible environment and should be able to change in response to changes in the environment – including the evolution of the team itself. the good job has to be recognised by people outside the project team. • Plan for creating an environment where team members are energised to air their opinions. • Develop a network of useful contacts who may be able to help or advise the project team as required. How the team is perceived from the outside will have a significant bearing on whether it is considered successful or not. take responsibility. how each individual should respond to people outside the project team in a wide range of circumstances. making sure that all the team members feel as though they belong. this will keep team morale high. overviews for senior managers. • Use the network to identify and provide quality project resources when and where they are required. • In the first instance. but they should not be unchangeable should circumstances require it. This will not happen automatically and requires conscious effort by the project manager. Establishing and planning measurable targets. doing things together. • Strong. credible leadership is required to provide clear direction and stimulate high performance from its members. detailed plans for operatives) and should contain as much information as is known and is appropriate for the particular level of communication. should they occur. Edinburgh Business School Project Management 2/43 . and be creative when confronted by problems. Have contingency arrangements in place to cover any unexpected events that might occur. • Develop a plan for managing and developing relationships. These have an important effect on motivation as the project progresses. • Establish firm ground rules so that participants understand both their own roles and as many aspects of the project as possible – for example. These can help overcome barriers and smooth problems. it is not unusual for advertising or public relations people to be employed for this purpose. It is not enough to do a good job. • Plan for the unknown. In the case of very large projects.

Team separation. and the project team should support and reward. Being apart from the other team members does not mean they have reduced their expectations. • Team members should be aware of their individual contribution to the project but also recognise their value to the team and the need for co-operation with the team. preferably documented with time scales and individual or group responsibilities. • Accept and address conflict.Module 2 / Individual and Team Issues • 6 7 8 Continual research is required into ways to improve both the internal and the external workings of the team. solve problems and make decisions) but also for other important purposes such as confirming the group’s identity. • Specialists and others drafted into the team temporarily must be seen in a positive light and not considered a nuisance. debate and challenge between its members. • Establish an effective formal communication system and make use of informal communications. and then action on the findings should occur. • Team members are expected to deliver on time what they agreed to. and celebrating success. such as an internal legal services department. • Active followership is much more valuable than passive followership. • Rewarding good performance will motivate members. Project managers tend to work more closely with their team members and the relative power of the informal communication network should be exploited.6). Communication systems. Membership and identity. • In order to develop a good working team spirit. It is also important to ensure that poor performance is not ‘tolerated’. • Efficient communication with external bodies is particularly important. The project manager requires their respect and must have credibility to carry out the job. There may be a requirement to work through an interface.e. providing opportunities for active involvement. The project manager should ensure that adequate communication systems are in place and are functioning correctly. The members need to believe in the project manager’s ability to get the job done. • Meetings can be very effective if sufficient advance preparation has taken place and they are well run. Edinburgh Business School Project Management 2/44 . formal or informal meetings are important not only from the classic point of view (i. meeting to exchange information. • Team members should clearly understand their roles and what these entail. reinforcing rules. This is important in maintaining motivation (see section 2. • Team members need to support the project manager for the team to be successful. • Meetings should always result in actions.

• less control bureaucracy is required. especially if another team member needs to visit them. Project team members are used to working in teams. or have them visit. Project Management Edinburgh Business School 2/45 . co-ordination may be a problem. Email. Video link conference facilities mean that project teams can still meet when geographically separated. There may be fewer opportunities to develop a good team spirit. the Internet. • Keeping in regular contact enables clear communication lines. • People often say that video-link conferences are ‘not the same’ as direct face-to-face interaction. • Managers lose control of work. this means that some project team members may never need to meet face to face. • Some people have a natural hostility towards the use of advanced IT. • If there are significant time differences between team members’ locations. Monday to Sunday. • records can be kept so that accountability and audit become simpler. This leaves individual team members free to manage their own responsibilities without unwarranted distractions. groupware and client–server technology have enabled project team members to work autonomously at remote locations at any time of the day or night. should face-to-face contact be necessary. It can be very frustrating if the land line or satellite link suddenly goes down mid-conference! • Team building processes and the formation of cohesion are severely restricted and the team has to develop alternative approaches to these requirements. For the project. Information technology Recent advances in information technology have brought significant changes to managing projects. There are many advantages to making use of IT advances: • it reduces the need for specific accommodation and facilities. There are also disadvantages. • IT can always go wrong. • team members work under less direct supervision and therefore have greater freedom of action. • Loneliness can be a major factor. • reduced direct interaction can lead to fewer conflicts resulting from personality clashes. including the following: • Supporting individual team members from a remote location can be expensive.Module 2 / Individual and Team Issues • 9 Members should be encouraged to rely on the ability of fellow team members to deliver what they agree to. • Commitment and momentum have to be maintained even when the team is working in different locations or is unable to meet as regularly as the members might desire. Many of them are motivated by the daily interaction with their work-mates.

recycling. commissioning. feedback and analysis. in one form or another. This is a very complex area with many interacting variables involved.Module 2 / Individual and Team Issues 10 Teams in general.5. there will be at least five clear stages. Many variations are possible and the appropriate one will depend on the specific circumstances of the project. final trials and approvals.2 Project Life Cycles All projects have a life cycle with phases. • performance measures and completion criteria are clear. The team therefore has to work and interact in different ways. or stages. 2. There could. 2/46 Edinburgh Business School Project Management . production.5 2. Most teams operate at their optimum efficiency and effectiveness under the following conditions: • there are regular face-to-face meeting with team members. For example. a market research phase may be included. • clear time commitments are established to which team members are expected to adhere. the team has to adopt different perspectives that are appropriate to each stage.5. use. as the project progresses through its life cycle.1 Project Team Evolution Introduction This section briefly considers how project teams evolve and change over time. The following is an example of typical phases associated with new product development: • • • • • • • • • • • • • inception. decommissioning. be more or different phases. feasibility. development and testing of prototype. manufacture of prototype. as objectives and project characteristics change. preliminary research and development. of course. For example. second stage research and development. These are set out next. However. of development and evolution through which the project passes. • team members are given responsibility and accountability for their part of the project. 2.

It could include minor repetitions of the whole life cycle – for example. Decommissioning. as well as the type and level of effort required at each stage. and a lower proportion of mass production costs.Module 2 / Individual and Team Issues • Conception and feasibility. Outline proposals will involve a more detailed analysis of what the project will entail. It involves the client in identifying a need for a project and establishing some form of scope or limitations in the form of project boundaries. and scrapping the production equipment or reusing it elsewhere if possible. including reassigning people back to their functional units or to other project teams. The decommissioning stage involves reassigning all the resources that remain after the project is completed. This stage represents the production phase. In Edinburgh Business School • • • • Project Management 2/47 . These proposals will include more detailed time and cost estimates. These approval barriers are sometimes referred to as gateways. what will be required in order to produce it. Outline proposals and definition. This involves the preliminary conception of the idea and then some form of feasibility analysis. This consideration could represent a major investment in some production systems – for example. how long it will take. The project manager will use this information to gain the approval from senior management to proceed. The composition and success criteria of the team will change. The requirements of the project team will obviously vary in relation to the project life cycle. Generally. The production system produces whatever the outcome or result of the project requires. It should also include recycling the product where possible. Tooling up is the process of producing all the manufacturing equipment and other process requirements of the project. Operation and production. This section could itself contain numerous subsections. how much it will cost. The feasibility analysis will include an evaluation of the likely need or demand for the project claim. and greater precision in defining the precise scope of the project requirements. This phase could represent a very large investment in relation to the unit value of the product. Conception is the initial phase. Tooling up. etc. and so on. where the product changes and the whole manufacturing process has to be re-evaluated. the proposals would also include a summary of the project resources that will be required. clear time scales. tooling up tends to form a high proportion of project costs. Once the bid has been approved. In most cases. a clear statement of the manufacturing and production requirements of the project. There will generally be some form of approval required at the end of each major life-cycle stage. the development of a full manufacturing production process. the project manager has to set up the organisation and production systems.

The main consideration during the design stage could be maintenance. Dounreay. and it has been estimated it will run for at least another twenty-five years. One project may feature a very large design period and a relatively small production period. An example of this would be a nuclear power station. as this is likely to require large investments later in the life cycle of the project. A project based on the development of a new car will probably involve long design and prototype development phases. the project manager’s leadership approach also has to change. as most buyers of new cars will tend to dispose of them before maintenance costs begin to escalate. as the team and objectives change. perhaps using established casting techniques. had a design period of around ten years and a construction period of around seven years. The characteristics of the life cycle and the actual phases exhibited will vary depending on the nature of the project. as the optimum design for given road types is well established. Questions: • • What would be an example of a project with a large design phase and a relatively small implementation phase? Are decommissioning and recycling phases likely to become more or less important in future? ♦ 2/48 Edinburgh Business School Project Management . especially as increasing levels of landfill taxes on industrial waste disposal make it more and more difficult to find depository areas for road and similar waste. A project based on the construction of a new road will probably involve relatively little research and development work. Other projects might involve lengthy decommissioning phases. The decommissioning process had already been ongoing for ten years by 2001. The relative importance of each life-cycle phase will also vary in relation to the characteristics of the project. while the actual production process. Recycling and decommission costs should not be significant as it is relatively easy to recycle most parts of a car. The research and development behind the design process could be relatively complex. on the northern coast of Scotland. An example could be the development and production of a new car component.Module 2 / Individual and Team Issues addition. could be relatively straightforward. The whole process is fluid. The maintenance characteristics of the new car might not be a major consideration. This is so because the end product will be produced under mass production processes and this factor will involve detailed research covering every aspect of the design prior to tooling up the production system. Recycling costs could be significant. ♦ Time Out Think about it: project life cycles. and a high degree of flexibility and adaptability is required. All projects necessarily evolve moving through a life cycle and exhibit different phases as the project evolves.

skill. Tucker’s widely known four stages of team development are summarised as forming. Edinburgh Business School • Project Management 2/49 . However. commitment. the group might depose the existing leader and elect one who more closely matches the group’s perception of leadership ability. The forming process ensures that all team members know all other team members.4 Project Team Evolution Teams evolve over time through a number of recognised phases. A team may or may not have a leader at this point. As these perceptions develop. Each phase is characterised by different team behaviour as each stage of evolution is followed by succeeding stages. and that everyone knows their own responsibilities and objectives. In closed systems. 2. where the team summarises the main project and team characteristics and aims. The forming process involves an individual and group evaluation of the project as a whole and of the team itself. conflict and resentment may increase. The forming process is dominated by the ‘first meeting’.5. there is an increasing tendency for conflict (see section 2. As individual team members begin to know each other better. where there is no flexibility for leadership change. • Forming. – an organisational breakdown structure. they are able to build up a clearer picture of each person in terms of ability. These are often summarised in the form of: – a task responsibility matrix. norming and performing. the team meets for the first time. – a baseline set of team and project objectives establishing duality. Storming.5. In an open system. Forming is the start of the process. This situation is changing to some extent with the introduction of new national and international standards on project management practice. – a project staff register. there has historically been very little attempt to standardise life-cycle phases and either the individual or the team responses in these to change.9). The new British Standard for Project Management Practice (BS6079) advocates the use of a standard generic strategic project plan or SPP. some team members may resent other team members whom they believe to have authority or control that is not proportional to their ability or commitment. interpersonal skills etc. This defines standard planning and control systems and gives recommended standard approaches to change control. the introductions are made and the project aims and objectives are established. BS6079 is discussed in more detail in Module 4.Module 2 / Individual and Team Issues 2.3 Project Change Control and Management The project and the project team are subject to constant change throughout the life cycle of the project. the rules of operation are established. In forming. For example. The storming stage is about establishing cohesiveness. storming.

• 2/50 Edinburgh Business School Project Management . In addition. If the storming process is overly restrained. The leader. in most cases the cohesion can only develop if the storming process is managed subtly. Any new conflicts that arise can be dealt with professionally by the team and would not require the intervention of higher authorities. All team members have to be satisfied that the team is equitably balanced and that the contributions of each member are adequate. may use influence to support and promote the leader positive school while restricting the leader negative school. Team norms vary widely in relation to a range of individual. They can also differ because all project managers will have their own views about what constitutes acceptable behaviour in any particular set of circumstances. Standards of performance are likely to differ between projects because of differences in the expectations and demands of different clients. – meeting deadlines for returning assignments and setting examination papers.5). performing can only take place if a full set of norms is in place. and the group could fragment. the process of actually performing begins. and external influences. – commitment to course development. • Norming. Managed poorly. Norms are team standards. This often happens where one group supports the leader and another does not. and the team is forced to accept members (especially leaders) who are perceived to be of insufficient ability or value. The performing team has resolved most or all of its interpersonal conflicts.3. This can result in a reduction in commitment and individual motivation. Examples of areas where norms become established for a university course team include: – teaching standards. interpersonal conflicts will arise and the cohesiveness of the group will be compromised.Module 2 / Individual and Team Issues The development of a cohesive group ideal is imperative (see section 2. This cohesion must develop. team. – research publication quality and rate. This norming process starts as soon as the storming process is complete and the organisational hierarchy and power structure has been established. Any group or team will develop both formal and informal standards of behaviour that all members will be expected to observe. organisational. Once the team norms are in place. the group will be unproductive. Cohesiveness is essential to productivity and effectiveness. Performing. However. The team can only perform at anything like full capacity if it has overcome any internal fragmentation that may have occurred in the storming process. if it does not. the whole process can lead to destructive conflict and an inability of the team to emerge from the storming phase. depending on personal level of authority and power.

with the remainder of the organisation.5. The English team were easily the better side and they fully expected to beat the Scottish team quite easily. aims and objectives for their own. Informal or formal rules and regulations are put in place to dissuade dissension and to ensure that team members either follow ‘the party line’ or leave the team.e. Lack of respect for competitors. Groupthink is sometimes an unintended consequence of highly successful team development and often starts to express itself during the performing stage of the development process. In psychology this is referred to as a form of displacement. people with alternative points of view. Typical symptoms of groupthink are listed below. derisory attitudes can even develop between branches of the same organisation. In some cases. These may or may not be consistent with those of the other members of the project team. As a result they played with an openly attacking formation and consistently went for high scoring ‘tries’ rather than lower score ‘drop goals’. Intolerance. Groupthink develops a misdirected certainty in the minds of group members as to the right and justice of the project. Groupthink is surprisingly common and the highly pressurised project environment can very easily contribute to its development. Individuals become so highly committed and motivated that they substitute the group’s emerging beliefs. Under the right conditions. It can be very dangerous to underestimate the opposition. or with the reasons the project is being undertaken. Individual project managers may develop disproportionate perceptions of the value of their projects. • Absolute commitment to the project. The Scottish team put on an inspired performance and eventually beat the English team. where the group’s objectives displace those of the individual. largely as a result of English over confidence and groupthink. It may also include delusions of the relative importance of the project to the overall corporate strategy of the organisation. Negative propaganda is another aspect of groupthink. Powerful group cohesion and commitment can lead to an intolerance of any dissenters i. This type of derisory attitude can often be observed between accounts department personnel and engineers or salesmen. aims and objectives that the group shares. In 1990 the English Rugby Union team were on the verge of winning the five nations championship by a ‘grand slam’ – winning against all their opponents. High cohesion and commitment can lead to the development of misdirected perceptions of direct and indirect competition.5 Groupthink Groupthink can occur where a group of individuals becomes very highly – sometimes totally – committed and motivated towards a set of beliefs. Important inconsistencies can cause serious problems that adversely impact on the effective operation of the team.Module 2 / Individual and Team Issues 2. Their last game was against Scotland. Edinburgh Business School • • Project Management 2/51 . the whole project team will enter a groupthink state.

This is often expressed as an unwillingness to implement internal change in response to changes in the environment. Edinburgh Business School Project Management • 2/52 . Some directors within Marconi advised strongly against this. The UK electorate had undergone a sea change in opinion during the mid-1990s and the government failed to recognise that their policies were rapidly becoming out of date. Incoming information is filtered to portray only good results and nobody is willing to criticise the team and the leadership. had his military training conditioned him to follow orders and not question the leader? When the lead pilot overruled him. Analysis of the plane’s black box recorder revealed signs of stress in the co-pilot’s voice. the UK Conservative government had been elected twice in a row and had served as the government since 1979. • Fear. USA on 13 January 1982. especially as established telecommunications players such as Vodafone and Nokia were already issuing profit warnings. Self-delusion is surprisingly common in successful teams. One example of this is suggested by the behaviour of the co-pilot of the 737 aircraft that crashed into the 14th Street Bridge over the Patomac River in Washington. In 1996. The aircraft took off from Washington’s National Airport that day and shortly afterwards hit the bridge and crashed into the river. Self-delusion. As a result the election swing to the opposition Labour party was one of the largest in UK history and the Conservatives were comprehensively defeated. The dissenters were however overruled and Marconi went ahead with what later proved to be a whole series of disastrous acquisitions. They had implemented a series of unpopular policies. One result can be that the team develops a false sense of invincibility. The co-pilot was an ex US airforce F-15 pilot who realised during the pre-flight checks that something was wrong. the co-pilot may have unconsciously elected for the self-censorship developed during his training. The voice of caution was ignored in the face of the optimism that had become established within the company. Seventy-four of the seventy-nine people on board died because the de-icing equipment on the aircraft had not been used. However. Groupthink usually occurs where cohesion and commitment are very high. and the result was seventy-four dead people.Module 2 / Individual and Team Issues As with derision of the competition. internal ‘censorship’ can be extremely dangerous. Team members may perceive that something is wrong but choose to censor themselves and remain silent rather than challenge the leader or be seen to be in conflict with the aims and objectives of the group. In the late 1990s Marconi decided to move out of its traditional defence specialisation and into the then high growth telecommunications and ‘dot com’ fields. Marconi sold off GEC (its primary defence arm) and bought a number of UK telecommunications and ‘dot com’ companies. It is often exhibited by people and organisations that have enjoyed success over a long period of time. It tends to be exhibited by most military dictatorships that face defeat. This tends to pervade the system and can endure despite undeniable reversals.

the High Command continued with an air assault that was far less effective and much more costly than they realised. Individuals and teams can be naturally (self) motivated or may need to be artificially (externally) motivated. These are individuals or sub-groups who filter all information entering the system in order to ensure that only positive information enters and negative information is suppressed or reduced. The figures for German losses were similarly incorrectly reported. inaccurate information was fed back to the High Command because people were filtering their own totals to make things look better.Module 2 / Individual and Team Issues • Selective reporting. even they adopt a less polemical stance. they dislike work and will avoid it if possible. but only after much unnecessary loss of equipment and personnel. today. Similar filtering behaviours have been observed during new development projects of all kinds. They naturally avoid increased responsibility and control. They eventually gave up and withdrew. An example would be casualty figures in a conflict.6. As a result. Traditionally.6.2 McGregor and Maslow McGregor advocated his famous Theory X and Theory Y to characterise opposing views on motivation within teams and organisations. These figures were assembled from data that were provided by individual sector commanders who believed absolutely in the cause and wished to maintain morale. In fact they had only eliminated around 650. Theory X states that operatives are basically lazy and unmotivated. The approach(es) required in order to increase levels of motivation will depend on the characteristics of the particular project team.1 Project Team Motivation Introduction Motivation is a highly complex area and includes a multitude of different elements. 2. Another common groupthink element consists of team filters. Theory X implies that a highly centralised and authoritarian management structure would be most appropriate.6 2. A significant element of contemporary motivation theory is based on the works of McGregor and Maslow. military hierarchies and structures were examples of this type of approach but. Project Management Edinburgh Business School 2/53 . With correct information they might have changed their strategy or tactics earlier and achieved a different outcome. As a result. In the late summer of 1940. the German High Command firmly believed that they had eliminated 3500 British military aircraft between 12 August and 21 September. This action is perceived to be necessary as negative feedback and criticism is unacceptable in groupthink. They must therefore be carefully supervised and threatened with punishment if they do not perform. and they prefer to be directed rather than use their own initiative. 2.

operatives value different desires and preferences according to which of them they already possess. operatives have basic physiological needs such as food and water. working with different teams for relatively short periods of time on relatively complex processes. project managers frequently work to much closer tolerances of time. In the hierarchy of needs. Project managers are often less autocratic and more flexible in their approach and operation. Maslow’s hierarchy is listed below. and like to succeed because this generates greater self-respect. they are no longer motivators. Other classic research has suggested different theories of motivation. project managers have to engender a much closer understanding of time. project managers have to have more faith in the abilities of their team members and generally have to allow more freedom of action. Maslow suggested a hierarchy of needs rather than two alternative and contrasting theories. Operatives want to do well at their jobs. The threat could be no more direct than referring to external market forces and encouraging operatives to work harder and more efficiently so that the organisation can succeed in the marketplace. • • • • • self-actualisation. and naturally more oriented toward Theory X. and therefore closer adherence to measurement and control systems. and their success and failure criteria tend to be relatively clearly defined.Module 2 / Individual and Team Issues Theory Y states that operatives are willing to work and complete the job without close supervision. although they occasionally have to be threatened. most operational systems fall somewhere between these two extremes. either directly or indirectly. so the individual looks to a second level of need. At the lowest level. As a result. physiology. These characteristics call for people who can innovate and improvise. esteem. in order to keep them motivated. Once these are satisfied. belongingness. Problems occur when one manager regards a member of staff as a Theory X employee and the other manager regards the same person as a Theory Y employee. On the other hand. Theory Y implies a less authoritarian management style. In practice. Functional managers often tend to be more autocratic. safety. They typically operate within more rigidly defined operational structures. Most employees are motivated in their jobs to some extent. with more operative initiative and enterprise. cost and quality performance than many functional managers. In order to do this. This relative imbalance between perceptions in Theory X and Theory Y can lead to problems within a project management context. find work stimulating and satisfying. This is generally because they are used to more flexible working practices. and as a consequence they have a better chance of keeping their jobs. Typical second-level needs would 2/54 Edinburgh Business School Project Management . cost and quality limits by team members.

In other cases. Higher-level needs are more subjective than lower-level ones. This involves feeling that one has the freedom to make the best of one’s talents within very limited constraints. Like McGregor’s alternative theories. Safety could be far more important to team members on a project that involves toxic or radioactive materials than one developing a software system. However. Edinburgh Business School • • • • Project Management 2/55 . the higher the level of need being considered. • Relative importance of the needs. The relative importance of each element will vary from project to project. but if this is not allowed to happen – possibly because the nature of the project or organisational influences cannot accommodate it – the result can be resentment and employee dissatisfaction. Some employees may well have a need for a sense of self-actualisation. from team to team. Anticipation. Some people will feel fulfilled at different levels than other people. people may not wish to join project teams because their need for a sense of belonging or togetherness is already being satisfied within their functional settings and they do not wish to lose this. Generally. belonging. the project manager cannot offer to fulfil this kind of higher-level need because the project duration is not a sufficiently long period of time to do so. Complex needs. Unsatisfied needs. Again.Module 2 / Individual and Team Issues include job security and safety. Third-level needs could include a sense of identity. and from individual to individual. where individuals have a desire to feel good about what they are doing and to feel a sense of esteem and value within the system. project teams are characteristically of a relatively short life span. In many cases. and to specify exactly when this need has been met. and also to determine how much food is needed at any one time. once these are satisfied they are no longer motivators. It is much more difficult to work out an exact requirement for self-actualisation. loyalty etc. Project managers typically have to motivate team members at the lower needs levels rather than at the higher ones. The hierarchy should be considered from a number of different project management perspectives. Developing a sense of comradeship and togetherness takes time. and a third level of needs arises. Above this is the esteem level. Time-based requirements. It is easy to determine when a person needs food. The hierarchy shows the needs at each level but there is obviously no guarantee that any one individual’s needs will be satisfied. Maslow’s hierarchy has direct implications for project management. togetherness. which will in turn affect performance and output. In some cases (such as self-actualisation) it may take a great deal of time. The highest level includes self-actualisation. the more there is a time element involved.

is for the employee to reduce his or her own contribution while maintaining the same reward. This type of perceived inequity is very common in organisations. they are hygiene factors. If this is withdrawn.3 Equity Theory and Expectancy Theory Equity Theory Equity theory is based on the perceptions of individuals in relation to what they do and how they are rewarded. Agreeing to this inflates project costs and can normally only be justified if the cost can be passed on to the client in some way or is covered by contingency amounts within the project’s budget. Employees perceive the fairness or otherwise of their rewards by comparing these. of course. A common way to reduce the perceived inequality. much of an individual’s motivation is therefore based on anticipation. For example. However. Again. Seek increased reward level. and it acts as a powerful motivator. the overall efficiency of the system may fall if feelings of perceived inequity are created elsewhere. the overall efficiency of the project is reduced and perceived inequity elsewhere in the system is likely to increase. people will seek alternative means of filling this need. There are. This is the best option as far as the project is concerned. The reward system therefore needs to reflect this belief. numerous choices facing an employee who is in a state of perceived inequity.6. and the level of effort necessary to obtain them.3. with those of other employees. the contribution could be of a different kind and (perhaps) be more attractive. Employees who feel they are doing a particularly good or important job could ask for an increase in salary. Although fulfilled needs are no longer motivators. People are motivated by the belief that the future will provide fulfilment of the next level of needs.6. This will increase the amount of reward. According to Maslow. an on-site caf´ e may meet the physical food needs of people. • Seek promotion.1 • • 2/56 . as set out next.Module 2 / Individual and Team Issues Fulfilled needs are no longer motivators. leaving the site to visit an external caf´ e. Some examples include sending a junior member of staff for sandwiches. although it depends on the ability of the system to meet that particular need. Edinburgh Business School Project Management 2. People then become motivated towards finding alternative means of fulfilling the need. Make a lesser contribution. Withdrawing the conditions that keep them fulfilled will lead to strong resentment and dissatisfaction. and the easiest of the three to execute. although it could also increase the contribution required. While this may satisfy those individual employees. and bringing their own sandwiches. Any perception of receiving an inadequate personal reward generates a feeling of inequity (unfairness). 2.

and the leadership style adopted should depend on the particular context or situation. The course leaders would naturally be in an ideal position to apply for the new professorships. This could happen where additional resources are put in as a result of individual(s) making a lesser contribution. 2. In any case. It is based on the idea that motivation is related to personal goals and objectives. Employees will strive to correct the situation so that the perceived inequity is corrected. probably linked directly to production and output. or where the supervisor decides that employees are being asked to do too much. Course leaders might not be prepared to accept current perceived inequities when considering the workload and rewards of other course leaders. Obviously.6. Such a situation can arise because individuals unilaterally decide to reduce their contribution. when student numbers reach a certain predetermined level. by virtue of the job is likely to be more flexible Project Management Edinburgh Business School 2/57 .Module 2 / Individual and Team Issues • Increase other inputs. The motivation in increasing numbers is therefore not anchored to the success of the courses but to the future positions and opportunities that it could open up for the course leaders. The individual employees can be motivated provided that the successful completion of the project can in some way be linked to the personal goals of the individual.3. Negative inequity is where the person feels undervalued in relation to the contribution being made. Expectancy theory suggests project managers can motivate team members even where the individuals have no immediate financial incentive to improve their performance. but they might be prepared to accept such inequities on the strength of the expectancy of what (professorship) may follow on from current actions. The project manager. the perceived inequity acts as a motivator. A factory might be producing different kinds of components. An example could be course leaders in a university. It is also important to appreciate that there can be positive and negative perceived inequities. A project team might be set up to develop new ways of fitting the components together. These will tend to be dominated by money-based incentives. They may be motivated to increase student numbers consistently over a long period of time on the understanding that. in charge of producing individual components on a mass basis will tend to have more rigidly defined standards and approaches to motivation. Positive inequity is where the individual perceives an inequity as being in his or her favour – as in the case of a person who feels overpaid in relation to the contribution that is required. The functional managers. professorial positions will be created in their disciplines. negative inequity is a more powerful motivator for change than positive inequity. Most people are motivated by a combination of different factors. ♦ Time Out Think about it: motivation.2 Expectancy Theory Expectancy theory suggests that people are motivated to make efforts to achieve goals that they believe will result in obtaining the rewards they desire.

Good communication involves high-quality information sharing and exchange. project managers require good flows of information. For example. from conception through to project completion. In successful projects there is continuous. The quality of the information flowing through the system. Communication is the process by which the project manager sends out information. It is a system for effectively integrating the efforts of project participants and for facilitating the project management and system development processes. Both formal and informal communications will be used as appropriate.2 Project Communication Communication among the various people and organisations involved in a project is analogous to the central nervous system of a body. and to take swift corrective actions when required. One reason for establishing informal communications is because the time taken by formal communication channels to identify and report problems arising can be overly long. 2. In addition. In successful projects there tend to be frequent review meetings 2/58 Edinburgh Business School Project Management . employees of functional units often have difficulty in establishing a direct allegiance to the project.7 2. but not always. Project managers tend to motivate through linking individual performance to the success of the project itself.Module 2 / Individual and Team Issues and adaptive. Good communication partly depends on the quantity and quality of face-toface meetings. Information flows in two directions. This can result in problems becoming very serious before any corrective action is taken. and delivered on a timely basis to the appropriate decision makers are essential for monitoring and control purposes. and of the system through which it flows.7.7. accurate. communications containing data that is relevant. clear communication among all personnel within the project team. 1) inwards to the project managers from other people and organisations and 2) outwards from the project manager to others. and will therefore probably have a different motivational perspective. is vitally important. to monitor and control. directives and objectives and then monitors actual performance.1 Project Team Communications Introduction In order to ensure good working relationships. so far as this is possible within the organisational reward system. how could the motivation of the programmers (functional employees) be linked to the success of the project? What motivational factors other than money could apply in this case? ♦ 2. Questions: • • In a project to develop a new computer game. Informal channels can respond faster on occasions. and this is maintained throughout all stages of the project life cycle.

as described next. and changes taking place. or from information that is ineffectively collected or distributed. and internal or external. telephone conversations. Problems often stem from poor-quality information. This type of communication results in quick decision making. At meetings. Being built along horizontal lines and having a relatively flat hierarchy encourage direct. which are separated from each other by boundaries. quick and open discussion without fear of recrimination from the distant top of the organisational structure. newsletters. the message will basically fall into two of four principal categories: formal or informal. seminars. Whatever method is used to carry the communication. it is usual to specify which issues and which people have priority. the lead roles can change hands as required because personnel have a mutual commitment to addressing and solving problems quickly. Access to meetings should be open to all project team members and they are encouraged to attend.3 Formal and Informal Communication Organisations naturally develop barriers to communication. Seminars are often held so that project team members can get a better understanding of the issues faced by other members. notice boards. The project environment is highly conducive to effective communication because of the nature of the project structure. chats. problems that arise. Many meetings are informal because this engenders trust among team members and they are more likely to respond to requests to express their viewpoints on the various issues.7. Most organisations tend to evolve different areas. Inadequate project communications is a common cause of many project failures. The project managers can choose from a wide range of ways of communicating including: • • • • • • • • • meetings.Module 2 / Individual and Team Issues to exchange information and instructions about project objectives. project plans and reports. status. However. that are typically based on functional specialisation and power. or being out-of date. which is an important aspect of projects with their conflicting constraints and commercial deadlines. Project Management Edinburgh Business School 2/59 . This concept is shown in Figure 2.6. letters and memos. 2. Successful project managers listen carefully to the views of their project teams. policies. email. inaccuracies.

In general terms. However. Section A2 in Figure 2. They represent isolated areas where there are clear boundaries to communication with other sections. for example. there is no need for A2 people to communicate directly with C3 people. The output from such packages is 2/60 Edinburgh Business School Project Management . A well-managed system will monitor and record the flow of information. In well-run projects. and that there is a means of providing a reciprocal service by delivering accurate and timely information into the system as required. today’s formal communication systems often become choked with volumes of relatively low-value information because it is easy to rely on the latest project-management software packages. Section C3 similarly represents members who work for Department C and operate at level 3. the interdependent nature of projects demands regular progress reports in order for later activities to be aware of any delays and their likely consequences.Module 2 / Individual and Team Issues Increasing authority Senior management Functional manager (A1) Functional manager (C1) Authority boundary Level 1 Production unit Production unit Production unit Production unit Team (A2) Team (A3) Team (A2) Team (A3) Team (C2) Team (C3) Team (C2) Team (C3) Level 2 Level 3 Function A Functional boundary Function C Operational island Increasing number of people Figure 2. represents organisational members who work for Department A at level 2. Good formal communication lines are an essential element for successfully collecting and disseminating project information.6. unless an internal project management system is set up (see Module 4). formal communication lines are strictly adhered to and rigorously maintained. This is particularly important in the project environment where deadlines are tight and contracts contain many obligations relating to issuing and receiving information. delivered in a suitable format when and where they need it. The chances are that any such communication that does occur will in fact be informal.6 Organisational barriers to communication The various sections of the organisation that are defined by the power and functional boundaries are sometimes known as operational islands. For example. Formal lines of communication are set up with the purpose of ensuring that project stakeholders get whatever information they need.

Project managers can put informal communications to better use if they can influence the channels in a positive way to encourage good working relationships between team members. • • • • Although informal communications systems are much less easy to manage and control. evenings in the bar after away-days. coffee breaks. The use of email systems has exacerbated this problem. A healthy project ‘grapevine’ can identify and expose real project issues very quickly. project away-days and events. This can be done in a number of ways. whilst it is largely impossible to control the grapevine. hence taking the risk of missing something of real importance. Informal communication lines are established in many ways. but some wellknown examples are as follows: Project Management Edinburgh Business School 2/61 . regular project meetings. whereas the unhealthy project grapevine will be a safe haven for resentment and disillusionment within the project team members. project newsletters that are useful for distributing information of lower urgency or of a social nature around the project team – these can be of immense value in helping to integrate the project team. telephone conversations. with clearly defined distribution lists to ensure that only relevant people receive the information. where information is disseminated in person – this encourages debate and discussion but can result in conflict. The tendency to ‘cover your back’ by issuing every piece of available information to all project stakeholders is common. the unhealthy grapevine will harbour issues and allow them to grow (often out of all proportion) and can be instrumental in destroying the effectiveness of the project team. it is possible to influence it. Rather than expose issues and deal with them.Module 2 / Individual and Team Issues frequently distributed to large numbers of people who have little or no use for the information they are receiving. they are nevertheless essential to the project team from a social and integrative perspective. The informal communication system in most projects and organisations tends to revolve around the ‘grapevine’ and. but should be avoided for the benefit of the project. which needs to be carefully managed to prevent it obstructing the communication lines. recipients will start to ignore the information. including: • • • • • lunch and dinner appointments with colleagues. The recipients of low-value information waste valuable time reading and discarding it. Formal communication tools include: • • frequently issued reports on all aspects of the project. and in the worst case. a project notice-board. project memos. social events.

and. If this is not done. Good external communication is almost the antithesis of this and requires absolute control in the dissemination of information. In general. they insisted that all existing NCR senior managers’ offices had the doors removed (much to the dismay of the NCR senior managers). the informal channels are solely used for the purposes of internal communications. or external to all other people. particularly that relating to problem areas and issues.7. information tends to get garbled on the grapevine and its accuracy cannot be guaranteed. one cannot be certain that the person that one wants to receive the information actually does receive it. First. In large projects. Some companies insist on weekly or even daily ‘walkabouts’ by senior managers in order to raise their contact profile amongst employees. although the increasing popularity in informally leaking information as currently observed in world politics will. ♦ Time Out Think about it: communications. 2.4 Internal and External Communications Project communication is either internal to project team members. conflicting. In most organisations and projects. Good internal communications rely on team members’ willingness to communicate and disseminate information openly. second. This introduces an immediate perceived rapport because customers know the name of the person that they are dealing with. Hewlett Packard staff are encouraged to use first name terms in order to reduce formality. informal communications are as important as formal communications – in many cases more so. It is essential to nominate an individual who is responsible for all external communications and it is absolutely vital that the other project team players are fully aware of who this is. and it is important to know who is being communicated to. When AT&T acquired NCR. Some companies insist on open-plan offices for everybody. and confusing and could be highly damaging to the success of the project. including senior managers. filter its way down into the project environment.Module 2 / Individual and Team Issues • • • • • Walt Disney employees at Disneyland Florida and Disneyland Paris all wear name badges. no doubt. the external communication channel is often via a single highly-trained expert communicator who is well-versed on the ‘party line’ and under no circumstances will be drawn into other areas. the messages released by the project team members may appear mixed. Call centre staff increasingly identify themselves before starting a conversation. External communications are generally conducted through explicit formal channels. This individual should approve all non-routine communications with outside parties. A good project manager accepts 2/62 Edinburgh Business School Project Management . The grapevine is a useful method of gauging feeling on the project but can be a very unreliable way of collecting and distributing information.

An effective form of stress management is useful and the basic elements of such a system are discussed below. the informal channels are often far more widely used and of greater value within the course group. where information is disseminated and communicated by phone.Module 2 / Individual and Team Issues this and engineers the informal communication process to try and make use of it. Hence.8. word of mouth etc. fax. A course leader in charge of certain courses might choose to write formally to students every few weeks. a team can be ‘stressed out’ to such an extent that it is unable to perform and the project fails. email.2 Origins and Symptoms of Team Member Stress Origins Project team members are particularly susceptible to stress.8 2. there may be set procedures for applying for extensions to submission dates or for deferring examinations. the university administration might also have regular mailings. Any student can ‘pin’ a question or problem on the notice-board. it is important that project managers can identify individuals or groups that are susceptible to stress. Examples include the student grapevine. Questions: • • What are the disadvantages of using an electronic notice-board for informal communications about a course? How could the disadvantages be reduced? ♦ 2. Typical reasons for this susceptibility include: Project Management Edinburgh Business School 2/63 . Other students can read this. One example would be an Internet site making use of an electronic notice-board for all team members (a so-called bulletin board or forum). This early identification provides the opportunity to intervene before the effects become too severe.1 Project Team Stress Introduction Project team stress is an important issue because it affects the efficiency of the team and of each individual team member. Some course leaders attempt to formalise the informal communication patterns by introducing some kind of centralised informal communication control.8. This technique of informal communication can often supplant the more formal communication pattern of asking for help through the tutor. At the extreme. along with all the other notices on the boards. However. These are all formal communication channels. 2. Students who have already solved the same problem can volunteer to help students who are still struggling with it. and are able to identify symptoms of stress at the earliest possible stage.

but perhaps the primary one has been the sustained long-term drive to reduce costs. operating within a frequently changing environment. Obvious personal problems would be domestic and family problems. These stresses are not related to stresses generated within the project team. This drive has brought two pressures onto employees: the need constantly to work harder. Stress has been recorded as becoming more or less endemic within the USA and EU workforces over the past ten years or so. projects tending to be relatively complex. Obvious examples would be fear of unemployment. who sometimes make conflicting demands on their time. work stress. or referring him or her to a specialist counsellor. Environmental stresses originate from outside both the individual and the workplace. but they contribute to the overall level of stress that is being experienced by the individual concerned. in many project management arrangements only a proportion of any one individual’s workload is directly attributable to the project. There has been a continuous cost-reduction drive in developed economies since the 1980s. There are numerous causes. personal problems can add additional stress that makes the overall level unhealthy. The project manager has some control over these stresses and can take action to reduce them. and this has produced a pressure to improve efficiency. individual responsibility. level of national economic activity. Work stresses originate from the work environment. the rest is attributable to the functional unit and is outside the control of the project manager. health concerns etc. However. Stress is more than just an unpleasant aspect of a demanding work environment. The project manager can attempt to reduce these personal stress levels by directly counselling the team member concerned. and changes 2/64 Edinburgh Business School Project Management . Personal stress originates from within the project team member concerned. financial problems. Personal stresses are almost always outside the control of the project manager. changes in technology. and leadership responsibility. having to work to strict time. conflict. Employees who are subject to high levels of stress take more time off work and are less efficient than employees who are subjected to acceptable levels of stress. cost and quality limits. environmental stress. and the fear of losing one’s job as fewer workers are needed to produce the same outputs. The main sources of project team stress are often grouped under the following headings: • • • personal stress.Module 2 / Individual and Team Issues • • • • • team members having project and functional bosses. Even if a person is being subjected to acceptable levels of stress within the project team. Obvious examples would be high workload. Stress leads to a real loss in productivity and efficiency. new working practices. teams having only a relatively short life span. Workers in most industries would report similar perceptions.

attendance decreases. an increased number of complaints and listlessness. Behavioural symptoms include an overall loss in energy and enthusiasm. migraine headaches. More recently. aggression and perceived physiological symptoms. The fear could be triggered by global factors such as the level of economic activity. and project managers in particular. the psychological symptoms certainly affect the reasoning and mental capacity of the person. The frequency and level of claims is expected to increase for the foreseeable future. to have systems and processes for identifying Project Management Edinburgh Business School 2/65 . behavioural symptoms. The project manager has virtually no control over personal and environmental stress within the project team. working patterns and characteristics change. These are usually coupled with an overall loss of drive and motivation and job satisfaction. judges in law courts have been awarding large sums of money in damages to employees who have been put into excessively stressful situations by their organisations or who carry excessive levels of stress in relation to the job position they hold. such as new technology making old practices redundant. depression and anxiety. and the behavioural symptoms can have a direct and immediate effect on the functioning and efficiency of the whole team. work and environmental stress experienced by a person might be acceptable but. overall. The physiological symptoms are unpleasant and affect the output and efficiency of the team member concerned. This trend puts the onus on organisations. or it could be far more specific. Physiological symptoms include raised blood pressure and increased heart rate. absenteeism increases. Psychological symptoms include sleep interruption (classically manifested as a reduced sleep requirement or poor quality of sleep). It is important to appreciate that the overall level of stress encountered by an individual depends on the cumulative total of all three different types of stress that are being experienced. memory loss. regulations are disregarded and so on. More advanced symptoms can include disorientation. Therefore it is very difficult to avoid this problem through planning and control. sweating and visual disturbance. Fear of unemployment can be a very significant stress for many people. These will be grouped under three headings: • • • physiological symptoms. The discrete levels of personal. These symptoms are all potentially harmful to the project team. the cumulative stress level may be higher than is regarded as acceptable by the individual. More advanced symptoms can include persistent nausea. Symptoms Most people have experienced all three types of stress at one time or another and are familiar with the main symptoms associated with it. In more advanced cases. and only limited control over work stress. psychological symptoms. and it may be exacerbated at times of economic or political uncertainty. trembling limbs.Module 2 / Individual and Team Issues in government.

As a result. psychological self examination and seeking advice where necessary. regular exercise. 2.3 Stress Management Individual Stress Management Changes in both approaches to work and employer expectations over the last ten years have resulted in a stress-aware culture.3.8. tend to exhibit fewer symptoms and lower levels of stress. breaks and holidays.2 Project-Team Stress Management While corporate approaches to stress management are still relatively underdeveloped. one of the first things that most general practitioners recommend to patients who are suffering from stress is a stress counsellor. Physiological control seeks to counter and relieve stress by a range of methods.1 There appears to be a definite link between poor diet. Whether this is a cause-and-effect relationship.8. 2. and which direction the cause and effect takes. Absenteeism. reduced tobacco and alcohol consumption (difficult for some project managers!). As people are forced to work more and more efficiently.3. and communicate well. an increasing number of companies are developing work practices that attempt to control work-stress development. Communication is perhaps the most important single element in avoiding or reducing stress. A significant contributor towards stress arises from the inability of many people to talk about what is causing the stress. and unreliability all have effects on overall productivity and efficiency. including learning how to control breathing and respiratory function. Some key findings from the research relate to: • • • • • • • • healthy diet. physiological awareness and control. Hence. 2/66 Edinburgh Business School Project Management .8. communication. Teams that listen to each individual empathetically. Simply having somebody who will listen can make a great deal of difference. periodic re-alignment and reconciliation between goals and self-limits. is not totally clear. Stress counsellors have access to a substantial body of research about managing stress. the incidence of stress-related problems has increased dramatically. Doctors report that stress-related problems are now one of the largest causes of patient visits to their medical practices in the UK. 2. many organisations are realising that stress costs them large amounts of money. These work practices include the following.Module 2 / Individual and Team Issues work-related stress conditions and for correcting them before the individual is harmed. work interruptions. lack of exercise and higher stress levels.

Approachableness. In such circumstances. This approach can be psychologically very valuable to team members. Reasonableness. The project manager must establish a position where he or she is viewed as being immediately approachable. People with children at school may find a conflict between school drop-off and collection times and official work start and finish times. so they are more likely to treat team members in the way they would like to be treated in similar circumstances. there are some team members who are less motivated or are resentful. Projects operate under conditions of constant change and it is important that the project manager can identify where a corresponding change in working practices is required. It is important that the project manager is able to maintain an open-minded attitude. Simple gestures such as understanding if someone needs time off work for family-related reasons. Project managers should try to put themselves in the position of the team members. can do much to reduce stress. individual contribution to the project could be evaluated in terms of end results rather than time spent on the work premises. Team members are Edinburgh Business School • • • • • Project Management 2/67 . it can often be of considerable help to allow flexible working times. The project manager should ensure fair play by balancing the workload across all team members according to their abilities. One example is strict working hours. A lack of communication and feelings of isolation are significant elements in stress development. Too rigidly defined and applied working practices can be a source of great stress for many employees. This inequality usually leads to resentment. In most teams. and who attempt to do less than their fair share of the work. The project will impose varying demands on the project manager and on members of the project team. Open-mindedness.Module 2 / Individual and Team Issues • Deregulation. or overlooking a short-term drop in productivity (provided the output is made up elsewhere). Flexibility. there may be some team members who are more dedicated and take on more than their fair share of the work in order to keep the team going. There will be peaks and troughs in work demand and the project manager should ensure that he or she makes full use of any troughs to allow project team members to take a break or reduce their output for a while. Equally. It is rare to find a project team where all the team members are equally motivated and doing their best. It is very easy for a person to become established in a particular routine and to expect constant adherence to the system. and this in turn contributes to overall work stress. As an alternative. Fairness. and making sure that all team members perform to the required levels. In doing.

with the end result being time. In most cases the project manager will not intervene unless it reaches a level that is no longer beneficial to the overall aims and objectives of the organisation. cost or quality problems. Typical examples include: • • • • • • • • • • • onerous resource constraints and limitations. and it can be a powerful tool in stress management. 2/68 Edinburgh Business School Project Management . conflicting functional and project demands. When it is constructive it can be useful in developing team relationships (see section 2. Conflict can take numerous forms and can originate from many different sources within the project system. individual perceptions of inequalities. The appropriate management response will depend on the conflict’s source and characteristics. In a fast-changing project environment. underlying resentment.9 2. but it can arise for numerous reasons. Conflict results to some extent from change. imposition of new aims and objectives. In its most dramatic forms. There is an old saying in the UK that ‘a problem shared is a problem halved’. incorrect or late information and communications. and a basic outline for conflict management is introduced.Module 2 / Individual and Team Issues generally much happier when they can approach the project manager and explain their worries and concerns.2 Sources of Conflict Conflict as a phenomenon is a natural by-product of human interaction.3. 2.3) This type of constructive conflict is sometimes referred to as ‘meaningful’ conflict. personality clashes. change and consequent need for re-alignment. Hence. These are examined below. There is certainly some truth in the saying. Conflict can lead to inefficient project teams as well as mistakes. pressure to meet demanding deadlines. The efficient identification and management of conflict is essential.9. 2.4) and it is a feature of the decision-making and problem-solving approaches used by most successful heterogeneous teams (see section 2. conflict is almost certain to occur at some point in the project life cycle.3. conflicts are likely to arise from time to time between various individuals and/or groups involved in delivering any project. identifying conflicts at an early stage of their development and resolving them swiftly wherever possible is very important. pressure to increase speed and/or reduce costs.9. conflict can lead to project failure. misunderstandings and differing interpretations of requirements.1 Conflict Identification and Resolution Introduction With the exception of the most simple of projects.

The weaker the perceived power of the project manager. project pressure puts a lot of stress on the project team players and when this stress is particularly high. This lack of clear specification allows different team members to develop contradictory ways of achieving the ultimate goals and objectives. the greater the probability of differences of opinion among team members. perspectives and opinions. heart-felt disagreement over a particular issue. the higher the degree of potential project team conflict. The lower the degree of specified and quantifiable objectives. the greater the degree of potential for project team conflict. tempers can become frayed and levels of tolerance can become greatly reduced.3) the greater the potential for project team conflict. There seems to be a link between the perceived power of the project manager and the willingness of the project team to work without conflict. The lower the level of individual communication and accountability within the project team. The lower the project manager’s degree of power and authority within the functional organisation. Edinburgh Business School • • • • Project Management 2/69 .3. the greater the tendency for conflict.9. Titanic about slowing the vessel down because of the risk of icebergs. History would have been different had the White Star chairman listened to the strongly expressed views of the captain of the S. The greater the degree of change required. Objectives and targets that are vague are open to misinterpretation.Module 2 / Individual and Team Issues 2. the greater the degree of potential project team conflict. in general. Change can be managed to some extent but the pressure for constant re-alignment and re-organisation caused by imposed change is a classical source of potential conflict. This characteristic is almost certainly because the greater the range of backgrounds. This in turn leads to the development of stress and generates a potential for conflict.S. it is not necessarily destructive. There appears to be a relationship between conflict levels and organisational factors as follows: • The greater the heterogeneity or multidisciplinary nature of the team (see section 2. In addition. Change requires all kinds of alterations to the established and evolving project organisational and technical structures. the greater is the potential for conflict to arise. Project management. and this in turn can lead to conflict within the team. Very powerful project managers tend to establish and manage teams with little conflict. Change is a catalyst for conflict. the more multidisciplinary the nature of any team. the greater the probability of conflict between the project manager and the other team members. Conflict is generally more widespread in systems where communications is lacking.3 Conflict Characteristics It has been observed that. by making use of shared resources from many disciplines. Conflict does not only arise out of bad feeling but may involve a genuine. is particularly susceptible to conflict. Research has indicated some key elements that are regularly found when conflict occurs. Positive action may result in avoiding action that may have been disastrous for the project in general.

Module 2 / Individual and Team Issues • The lower the relative perceived prestige of the project. provided that this is done. where change occurs. in agreeing areas for concentration. 2. In the project environment there are eight principle areas where conflicts regularly occur: • • • • • • • • when onerous deadlines have to be met. the contemporary view. The reasons for this are complex and relate in part to expectancy theory (see section 2. Outside this typical pattern. where uncertainty is high. People tend to associate more readily with a high profile project than a low profile one. it is difficult to generalise on the nature of conflict within the project environment.4 Approaches to Conflict There are two main approaches to conflict within organisations.3. where people clash because of personalities. People associated with high prestige projects tend to resist the tendency towards conflict longer than those that associated with other projects. the conflict may actually contribute to team development and evolution. when resources are reduced or are supplied at an inadequate level. it can be used to maintain group dynamics and to prevent team stagnation. if it cannot be avoided.2) and to a desire to be associated with perceived success. where errors or omissions are discovered. People tend to like prestige and to be associated with something that is widely perceived within the company as being important. the greater the degree of potential conflict. Experienced project managers should ask the following questions when seeking to identify the source of the conflict: • • • • • What is the source of the conflict? Why is the conflict occurring? What is the potential impact of the conflict on the project? Can the conflict be reduced or eliminated and if so how? Could the conflict have been foreseen and can similar occurrences be avoided in future? Edinburgh Business School Project Management 2/70 . The traditional view is that conflict is always bad and is to be avoided if possible. strict procedures should be put in place within the control system to make sure that the conflict is resolved as quickly as possible. in agreeing priorities. considers that some conflict may be useful. Conflict tends to be at its greatest during the highly active phases of the project and is reduced at both the start and the end.9. The alternative approach. The main factor is making sure that divergencies of opinion are monitored and managed.6.

It is obviously very important that the objectives and success criteria for the project are communicated accurately and effectively to all the individuals who are involved with the project. they are subject to change as the project develops and evolves. The end result of this objective redefinition is increasing class sizes and falling quality. The result might be an increased student-to-staff ratio and falling teaching quality. and feel frustrated by falling standards and levels of student performance. realistic. measurable. The combined-studies project might work and show a significant increase in student numbers over a three-year period. project objectives should be: • • • • • • • • • clear and precise. However. different members of the project and functional teams might develop different perceptions of what the project is trying to achieve. fee income and quality might have been regarded as having equal priority.Module 2 / Individual and Team Issues The first question is perhaps the most important. Project Management Edinburgh Business School 2/71 . This new degree might involve teaching inputs from specialist staff from a number of different departments. this growth might not be matched by the resources required to sustain it. As a general rule. another phenomenon that can occur is objective reclassification. a university might want to set up a new combined-studies degree in order to increase student numbers while maintaining teaching quality. compromises on quality might be accepted rather than expending additional resources (and therefore reducing cost-efficiency) on the project. Originally. However. communicated to everybody in the project team. This again is an obvious area for conflict to evolve because staff resent increased class sizes and workloads. because a project resource requirement (maintaining an adequate student-tostaff ratio) has not been satisfied. However. For example. If this clarity and communication does not occur. achievable with the resources and constraints given. communicated to stakeholders (where appropriate). once the head of department sees the large increase in fees. both of which would be considered unwelcome. In this type of example. related to each other (where appropriate). These principles can all be applied at an early stage. agreed by senior management. A significant proportion of project conflict originates from contradictions or inconsistencies within the project objective criteria. The head of department might see student numbers increasing and thus a corresponding increase in fee income. This potential incompatibility is an obvious origin for future conflict. compatible with the overall strategic plan. The achievement of one project objective (increasing student numbers) has compromised another objective (maintaining teaching quality).

Conflict resolution imposition occurs where there is no alternative. A manager might absorb the costs of a conflict where a mistake has been made. This option involves accepting that there is a conflict and then attempting to agree or negotiate a mutually acceptable solution. Conflict resolution imposition. and as a result it has to take extreme action with no time for consultation or negotiation. This action will produce inevitable conflict within the organisation. or because the matter is deemed to be insufficiently important to justify any detailed conflict resolution. For example. It depends on the parties having similar powers and being able to make similar levels of threat. Negotiated conflict resolution. This kind of approach is justified in extreme or emergency situations. the project manager probably has to accept that conflict will occur and try to minimise the consequent effects. or where circumstances have changed to such an extent that the manager’s previous position is no longer tenable.5 Conflict Management Project conflict is a natural occurrence. it might be necessary suddenly to announce a large number of compulsory redundancies (job losses) without consulting the unions or other people involved. The project manager will usually be the main arbitrator in any contentious situation within the project team. His or her judgement is 2/72 Edinburgh Business School Project Management .9. This often leads to conflict simply because the personalities of the individuals concerned are incompatible. or even respect. Conflict can sometimes be accepted as inevitable. them – a difficult task to achieve. Senior managers within an organisation may know about a conflict but chose to avoid becoming involved. • • • It is important to deal with conflict as quickly as possible to ensure that a project team’s performance does not suffer as a result of minor disagreements between key players. An example of this approach could be employer–union negotiations over a pay rise. This may arise when no reasonable or acceptable solution can be found. but there may be no alternative. Conflict absorption. This usually involves some compromise between the positions adopted by the parties to the conflict. An organisation might suddenly find itself in extreme financial difficulties because of some unforeseen event. The usual guidance to relieving stress in such a situation involves persuading team members that it is important to be able to work with people even if team members do not like.Module 2 / Individual and Team Issues 2. There are several alternative approaches for managing conflict. a project manager has to be a conflict manager and reduce levels of conflict where necessary. Under such circumstances. as set out next: • Conflict avoidance. It is common to find a project team where two or more people have personality clashes. Thus.

learn from this occurrence and try to avoid future conflicts that may arise from similar sets of circumstances. A typical reason for conflict would be playing formation: the team is not scoring many goals so it has to be the fault of the strikers. Conflict in some form is inevitable. the less direct confrontation and argument there will be. the fewer arguments there will be among the players. present the decision as a win–win situation in terms of the project’s success. examine the project-function interface and see if it is working correctly. In addition. attempt to get everyone to accept the decision. A discussion forum. there will be a tendency for the team members to start arguing among themselves. if results start to go against the team. provided it is properly managed. the more the players talk about the problem. acknowledge each party’s position and feelings and respect their viewpoints. One process for doing this is to: • • • • • calm everyone involved down and give them time to get their emotions in check. focus on the cause of the conflict and do not apportion blame. clarify the facts of the situation. look for any evidence of victimisation or specific targeting. this is actually a weakening move as it further compromises the leadership and perceived authority of the head coach at exactly the time when that position needs to be strengthened. set up a monitoring system to make sure that things improve. establish the best option in view of the project goals and priorities (this is most valuable if both parties can be persuaded to work on this and arrive at the decision together). there will be little tendency for conflict. When things are going well. where all views can be raised openly and without fear would also be a good idea. talk to the functional managers concerned and ascertain if there is any functional involvement or connotations. Generally. The Head Coach should also clearly set out the aims and objectives of the team for the remainder of the season. look for any evidence of personality clashes and speak to the people involved. but it is an important driver for the project. If it is not to win the league championship.Module 2 / Individual and Team Issues unlikely to be popular with everyone. they will in turn blame the mid-field players for not getting the ball through to them often enough. the stronger the personality or position of the head coach. One solution to such conflict could be to adopt the players’ collective recommendation. attempt to talk to everyone (or at least to the people who appear to be central to the problem) and gather any relevant background information. and so on. However. set a timetable for reconciliation. then what is the objective? Project Management Edinburgh Business School 2/73 . However. A football team can again be used as an example. • • • • • • • • • • ♦ Time Out Think about it: project team conflict. if possible .

increasingly. there is a mismatch between the project manager’s level of responsibility and level of authority. and the cross-functional nature of the project administration. Project managers tend to operate across the usual vertical functional boundaries within organisations. Edinburgh Business School Project Management • • • • • • • • • 2/74 . decision and systems theories. team building. cost. professional and technical skills. Project managers work across interfaces. The project manager is in a unique position and the project manager has to operate within the constraints of the ‘project management chair’ (see section 2. behavioural. They are presented in a similar order to that in which they appeared in the text. controlling. specially trained professionals. directing.2). authorising. performance and safety limits. The temporary nature of a project. Different projects require different approaches. organising. the project manager has a responsibility for planning individual and team authority and communication relationships. Frequently. and the provision of life-cycle leadership. leading. The project manager needs to have a good range of managerial. Project management involves numerous applications for the planning of a project.Module 2 / Individual and Team Issues Questions: • How else could potential conflict be reduced in the team? • What could happen outside the team that would result in an increase in conflict potential within the team? ♦ Learning Summary This section summarises the key points that have emerged from this module. The official authority of the project manager is often lower than the project requires. The primary requirements for effective project management are planning. tend to limit the project manager’s authority. Their projects tend to be of relatively short life span and the position of the project manager is always temporary. Different approaches can be considered from viewpoints arising from empirical. Project managers have to be good at interface management. Technical planning is required for project planning and control (see Module 5). In addition. The Project Manager • • There is no one single model for a project manager. These criteria usually revolve around time. cost planning and control (see Module 6) and quality management (see Module 7). Project managers and functional managers might have completely different views on how their organisation works and should be structured. Project managers are usually either converted functional managers or. Project management is a special condition in terms of organisational authority. These skills must be applied within the overall success and failure criteria for the project.

securing senior management support. Project managers have to be good at directing people. The project team is subject to individual and group behavioural variations. interdependence and differentiation. Project management leadership is involved with the life cyle of the project. Most forms of controlling used in project management are based on historical variance analysis and forecasting the future. establishing success and failure criteria. Some operate externally. methods or products and would tend to be internal projects for the benefit of the organisation’s effectiveness. interpersonal skills. problem-solving ability. The function also involves directing other people in order to ensure that their actions are appropriate to achieving the overall aims and objectives of the organisation. The leadership demands and style change through the course of the project life cycle. This skill involves targeting. an ability to handle conflict. Project teams tend to exhibit pronounced sentience. Individuals behave and function differently when they are on their own Edinburgh Business School • • • • Project Management 2/75 . Leadership skill requirements vary from project to project. This function involves achieving organisational goals through the use of organisational and project resources. interface management skills and factor balancing skills. obtaining necessary resources. Project teams tend to be unusual in that they are often highly multidisciplinary. Project managers have to be good leaders. Team building in a project management context is the process of taking a series of individuals from different functional specialisations and welding them together into a unified project team. In most project-management applications. The projects are likely to be developmental in nature and would tend to be projects to improve systems.Module 2 / Individual and Team Issues • • • • • Project managers must be able to control. The process involves establishing commitment. evaluating and correcting. procedures. project teams are set up within existing functional organisational groups and therefore lie somewhere between the purely functional and purely project extremes. The project manager assembles specialists from a number of different functional groups and then welds them into a project team. developing good leadership and communications. Classical leadership traits are decision-making ability. Project Team Processes • Many projects teams operate as individual entities within functional departments. and establishing reward and conflict controls. they are highly unlikely to be the reason for its existence. communication skills. Although projects carried out in this environment may be strategically important to the organisation. measuring. Larger ones operate across functional departments. developing team spirit. The general trend of leadership evolution from high task/low relationship to low task/low relationship is a characteristic of the development of any project team. an ability to integrate new members.

These are summarised by Tuckman as forming. Groupthink tends to occur in highly cohesive and motivated groups and can lead to undesirable behaviours that can compromise the project’s chances of success on occasions. Some team members – for example. Simultaneously. Edinburgh Business School Project Management 2/76 . Although knowledge of the technology underpinning the project is vital in performing each of these roles. or at the very least should recognise and explicitly state any gaps or weaknesses. The senior manager on the project team acts like a managing director. the project manager has to negotiate with the various functional managers in order to secure the people desired for the team. ‘Groupthink’ is one possible stage of project team evolution. norming and performing. The strongest factors in determining a multidisciplinary group’s performance are heterogeneity and cohesion. including a definite start and completion point. The project team is the group of people contributing to meet the objectives of the project. storming. The team requires a balance of technical and management skills. It occurs as a result of the normal performing process. with the appropriate blend of individual specialisations. There are a wide range of models and theories that can be used to guide them in this process. • • • • • Project Team Evolution • All projects have a life cycle. • • Project Team Motivation • Project managers are responsible for developing high motivation levels within their teams. The life cycle represents the phases of development and evolution through which the project passes. There are four generally recognised stages of group development. financial director and operations director of the business that is the project. The project management team members should cover the main areas of the project in terms of skills and expertise. This identified shortfall will draw special attention to that area and is important because any aspect of the project without a competent project management team member supervising and supporting it is in danger of running out of control without the fact being recognised. the project manager recruits people from different functional teams within the organisation (see Module 4). Project Team Staffing Profile and Operation • Most frequently. specialists whose expertise is only required for a particular activity – will have very small parts to play in the project and probably will not see that they are a part of the close body of people who have more active and longer-lasting roles. the primary function in each position is a project management one. The project manager does this by assembling some kind of estimated schedule of resources required and then seeks senior management approval to implement it.Module 2 / Individual and Team Issues • than when they are acting as part of a team.

Project Team Communications • Successful projects are often characterised by good communication and highquality information sharing and exchange. delivered in a suitable format. disliking work and avoiding it if at all possible. They are nevertheless essential to the project team from a social and integrative perspective. based on the idea that motivation is related to personal goals and objectives. Informal communications systems are much less easy to manage and control. This theory suggests there are different levels of need depending on the relative position of the individual within the needs hierarchy. they want to do well at their jobs. esteem and self-actualisation. Edinburgh Business School • • • • Project Management 2/77 . informal. and they want to improve themselves and generate greater self-respect. Equity theory is another approach to motivation theory. The informal communication system in most projects and organisations tends to revolve around the ‘grapevine’ and whilst it is largely impossible to control the grapevine. even where there is no immediate or direct financial incentive from the project itself. they find work stimulating and satisfying. out-of-date information. Individual employees can be motivated provided that the successful completion of the project can in some way be linked to achieving the personal goals of the individual. Any perception of unfair personal reward generates a feeling of inequity. Inadequate project communications can be a significant factor in project failure. Theory Y states that operatives are willing to work and complete the job without close supervision. There are four principal categories of communications: formal. Problems occur when one manager regards a member of staff as a Theory X employee and another manager regards the same person as a Theory Y employee. belongingness. internal and external.Module 2 / Individual and Team Issues • • • • • McGregor’s ‘Theory X and Theory Y’ model offers one approach to motivation theory. Good communication implies a system for effectively integrating the efforts of project participants. Theory X states that operatives are basically lazy and unmotivated. The different levels of needs are termed and physiology. Expectancy theory is another approach. Maslow’s ‘hierarchy of needs’ is an alternative viewpoint. Formal lines of communication are set up with the purpose of ensuring that project stakeholders get whatever information they need. when and where they need it. It is based on the perceptions of individuals in relation to what they do and how they are rewarded versus how other employees or groups are treated. Expectancy theory allows project managers to motivate project team members. Problems often stem from poor-quality information. it is possible to influence it. and that there is a means of providing a reciprocal service by delivering accurate and timely information into the system as required. inaccuracies. safety. or from information that is ineffectively collected or distributed.

the greater the probability of differences of opinion arising. work stress and environmental stress. particularly that relating to problem areas and issues. Other than this. Employees who are subject to high levels of stress take more time off work and are less efficient than employees who are subjected to tolerable levels of stress. Personal stress originates from within the project team member concerned. T or F? 2/78 Edinburgh Business School Project Management . the greater the degree of potential for project team conflict.1 Operational islands are caused by power and functional boundary divisions. Environmental stresses originate from outside both the individual and the workplace. T or F? 2. Project Team Stress • Stress is more than just an unpleasant aspect of a demanding work environment. the greater the potential for project team conflict. The three main sources are personal stress. Conflict tends to be at its greatest during the highly active phases of a project and is lower at both the start and the end.Module 2 / Individual and Team Issues • • Good internal communications rely on team members’ willingness to openly communicate and disseminate information. the higher the degree of potential project team conflict. Stress leads to real losses in productivity and efficiency. The lower the level of individual communication and accountability within the project team. This tendency is almost certainly because the greater the range of backgrounds and opinions. Good external communication requires absolute control over the dissemination of information. Work stresses originate from the work environment.2 Operational islands tend to lead to organisational inefficiency. • • Conflict Identification and Resolution • The greater the heterogeneity or multidisciplinary nature of the team. The lower the degree of specified and quantifiable objectives. The lower the project manager’s degree of power and authority within the functional organisation. Project team stress can originate from numerous sources. the greater the degree of potential project team conflict. it is difficult to generalise on the nature of conflict within the project environment. • • • • Review Questions True/False Questions The Project Manager 2.

T or F? 2. T or F? Project Team Processes 2. the project manager has authority equal to the functional manager.19 Time spent working on the function always detracts from project performance.15 In terms of multidisciplinary team performance.20 All project teams evolve through life-cycle phases.13 Project teams are generally multidisciplinary.10 Most internal project teams operate within existing functional boundaries. T or F? 2.8 All project managers are former functional managers. T or F? 2.9 Team building is the single most important skill requirement for a good project manager. T or F? 2. T or F? 2. T or F? Project Management Edinburgh Business School 2/79 . T or F? Project Team Staffing Profile and Operation 2. T or F? 2. T or F? 2.Module 2 / Individual and Team Issues 2. the greater the efficiency of the team.17 In most cases when project managers are staffing internal project management teams. T or F? 2. T or F? 2.3 An internal project-management organisational structure represents a compromise between purely functional and purely matrix organisational structures. T or F? 2. T or F? 2.4 In an internal project-management system. T or F? 2.11 Larger project teams operate across existing functional boundaries.12 Project objectives rarely relate to overall organisational objectives.5 In an internal project management system. T or F? Project Team Evolution 2.7 Project teams are temporary compared with functional teams. T or F? 2. the project manager has equal authority to the project sponsor.16 In terms of multidisciplinary teams.6 A project sponsor is necessary in order to ensure that the organisational power of the functional manager is maintained. cohesion is more important than the degree of heterogeneity.18 Time spent working on the project always detracts from functional performance.14 Multidisciplinary teams are more efficient than single-discipline teams. T or F? 2. the project managers are able to pick and choose between functional staff in order to assemble the strongest possible project team. the higher the degree of heterogeneity.

28 Expectancy theory is based on an individual’s expectations of possible future advancement in relation to contributions made now. T or F? Project Team Motivation 2.36 In general terms.21 Project manager leadership skills and requirements vary according to the project team life-cycle phase.37 There is a direct relationship between project team communication and the potential for conflict development.33 Stress originating from the workplace is always the largest single stress contributor to an individual. T or F? 2. T or F? 2.23 Groupthink is inevitable. relative to the same equation for other people. T or F? 2. All project teams will reach a groupthink stage eventually.25 Maslow’s hierarchy starts with basic physiological needs and progresses to more complex psychological needs.26 In Maslow’s hierarchy. the greater the potential for conflict development. T or F? Project Team Communications 2. T or F? 2.30 Communication can be formal or informal.29 Effective communication is essential to project team operation.34 The more multidisciplinary the project team. T or F? 2. T or F? Project Team Stress 2.35 Conflict is always bad and should always be discouraged. T or F? 2/80 Edinburgh Business School Project Management .Module 2 / Individual and Team Issues 2.31 Formal communication is more important than informal communication. T or F? 2. T or F? 2. T or F? 2.27 Equity theory is based on an individual’s perceptions of their contribution or value to the organisation in relation to their cost to the company.22 The more multidisciplinary the team. food is more important than shelter. T or F? Conflict Identification and Resolution 2.24 Theory X and Theory Y relate to mechanistic/authoritarian and organic/democratic theories of organisation. the faster the evolution of the team life-cycle. respectively. T or F? 2.32 Project team member stress has a direct impact on efficiency. T or F? 2. T or F? 2. T or F? 2. the greater the project manager’s perceived power the greater the potential for conflict development within the project team.

38 In terms of overall organisational authority structures. earned-value analysis. Variable. 2. Equal. what do project objectives tend to be? A B C D Central.Module 2 / Individual and Team Issues Multiple Choice Questions The Project Manager 2. Intermediate and variable.42 Which of the following is correct? Most retrospective monitoring and control in project management is based on A B C D variance analysis. Project Management Edinburgh Business School 2/81 .43 Organisations can be set up and operated in different ways. 2. four levels. what does a project life span tend to be? A B C D Longer. Complementary. 2. What would a pure functional organisation be typical of? A B C D A football team. This implies communication and control involving A B C D one level. Supplementary. cost–benefit analysis. 2. A government department. Comparable. performance analysis. Irrelevant. three levels.39 In terms of an organisation’s objectives. Project Team Processes 2. Same. A research division. A university faculty.40 In terms of overall organisational life span. two levels. Shorter.41 Which of the following is correct? Project managers operate within what is sometimes referred to as the ‘project management chair’. what does the authority of the project manager in relation to the functional managers tend to be? A B C D Greater.

2. dependencies between sub-teams. A research division. 2. A research division.44 What would a pure project organisation be typical of? A B C D A football team. Bidisciplinary. 2/82 Edinburgh Business School Project Management . dependencies between sections. evolve. associate with members with a similar background. Multidisciplinary.Module 2 / Individual and Team Issues 2. Other.48 Which of the following is correct? Differentiation is the tendency for project teams to A B C D integrate.49 Which of the following is correct? Interdependency is the tendency for multidisciplinary project teams to develop A B C D dependencies between people. be multidisciplinary. A university faculty. 2.45 A matrix or internal (non-executive) project management structure represents a combination of functional and project philosophies.46 What do project teams within internal (non-executive) project management systems tend to be? A B C D Unidisciplinary. A government department. 2. be bidisciplinary. A government department. Which of the following example is correct? A B C D A football team. dependencies between objectives. unify. fragment. A university faculty.47 Which of the following is correct? Sentience is the tendency for project team members to A B C D associate with each other. 2.

B other project teams. management and other skills.50 Which of the following is correct? In internal (non-executive) project management scenarios. Project Team Motivation 2. B past actions. D stress. project team members are generally recruited from A functional teams. C future actions.Module 2 / Individual and Team Issues Project Team Staffing Profile and Operation 2. D Other. performing. Project Team Evolution 2. 2. What should they comprise? A Technical skills.55 Which of the following is correct? Expectancy theory is based on an individual’s perceptions of what he or she can obtain from the organisation in the longer term in return for A current actions. forming and storming. C Other skills. B Management skills.52 Project teams evolve through established evolutionary phases. Project Management Edinburgh Business School 2/83 . B interaction. D other. B Storming. D Technical. D Performing. norming and performing. C outside the organisation. norming and forming. B project team objectives.51 The project team should contain a balance of a number of different types of skills. 2. forming. storming.53 Which of the following is correct? McGregor’s Theory X and Theory Y are based on perceived individual characteristics of A communication.54 Which of the following is correct? Equity theory is based on individuals’ perceptions of their contribution to an organisation in relation to their cost relative to A organisational objectives. C other project team members. What is the chronological sequence? A Forming. storming. norming and performing. 2. D Other. C Norming. C motivation.

the smaller potential for conflict.59 Which of the following is correct? Generally.Module 2 / Individual and Team Issues Project Team Communications 2. None of the above. Some of the above. Generally. None of the above.56 Which of the following is correct? Project teams tend to be characterised by A B C D E F G internal communications. informal communications. All of the above. the potential for conflict remains unchanged. formal communications. Project Team Stress 2. 2/84 Edinburgh Business School Project Management . the lesser the potential for conflict. 2. external communications. All of the above. external stress. None of the above. Conflict Identification and Resolution 2. Some of the above.58 Which of the following is correct? Conflict within project teams relates to a number of different areas. None of the above. The stress that is experienced by any individual project team member is a function of A B C D E F individual stress. work stress. the potential for conflict remains unchanged.57 Which is correct? All project team members are subject to stress. the greater the heterogeneity of the project team A B C D the greater the potential for conflict. the greater the degree of authority of the project manager within the organisation A B C D the greater the potential for conflict.

In this case a decision was made to use in-house expertise in order to reduce the overall cost of the merger. John has been given two weeks to develop a project team which will accept responsibility for all aspects of the planning and implementation of the acquisition. Project Management Edinburgh Business School 2/85 . DEF has outlets in most major towns and cities around the UK. 3 Discuss the likely human based problems that may arise and consider possible counter measures. The structure of the project team will be very important as it will have to be able to handle a complex range of motivation and commitment issues. The shareholders themselves are expected to agree the sale at an extraordinary general meeting due to take place within the next month. DEF is a well-known high street frozen food retailer. Questions: 1 Discuss a possible arrangement for the project team. John has been approached by a senior manager and has been asked to act as project manager for the proposed acquisition. The company is well-established and has a history of making successful mergers and acquisitions in support of its strategic growth objectives. John is currently a functional manager with specific responsibility for a group of manufacturing processes. ABC already owns a number of different food and drinks manufacturers and retailers and controls a number of well-known UK brands. Company ABC has a ‘laid-back’ culture with informal authority links and a fairly loose power structure. John will therefore have to be careful to allow for the different cultures of the two organisations when trying to achieve the acquisition project objectives.Module 2 / Individual and Team Issues Mini-Case Study Background John is a senior employee of a large UK company food and drinks retailer ABC PLC. and this offer has been accepted in principle by the board and recommended for acceptance to the shareholders. 2 Consider any other teams that are likely to be involved. The acquisition is likely to be friendly in that the board of ABC have made a generous offer to the board of DEF. while company DEF has a much more formal approach largely as a result of historical developments. Some human aspect problems are expected in this case because company ABC has a different organisational culture from company DEF. The board of ABC considered awarding the acquisition project management function to external consultants as they had done with previous acquisitions. ABC is now considering the acquisition of DEF Ltd.

.

3 3.6 3.3 3.4.7.2 3.4 3.6.4 3.1 3.6 3.2.4 3.2 3.6.4 3.3.7.Module 3 Project Risk Management Contents 3.5 3. Policy and Reporting Risk.5 3.7.2.6 3.6.5.7 3.3.7.7 3.2 3.6.4.4.1 3.5.1 3.2.2 3.7.5 3.6.2 3.3.7 Introduction Background to Risk Introduction The Concept of Risk The Human Cognitive Process Risk Handling Introduction Risk Assessment and Control Project and Strategic Risk Types of Risk Generic Risk Headings Market Risk and Static Risk External Risk and Internal Risk Predictable and Unpredictable Risks Risk Conditions and Decision making Conditions of Certainty Decision Making under Conditions of Risk Decision making under Conditions of Uncertainty The Need for a Risk Management Strategy The Concept of Risk Management Introduction Risk Identification Risk Classification Risk Analysis Risk Attitude Risk Response Risk Control.1 3. Contracts and Procurement Introduction Basic Contract Theory Procurement Characteristics of Contracts Transfer of Risk in Contracts Variation Orders and Change Notices Claims Risk 3/2 3/3 3/3 3/3 3/8 3/11 3/11 3/11 3/16 3/19 3/19 3/20 3/22 3/25 3/25 3/27 3/28 3/28 3/33 3/33 3/33 3/34 3/38 3/40 3/46 3/48 3/53 3/55 3/55 3/56 3/59 3/63 3/65 3/65 3/65 3/67 Learning Summary Project Management Edinburgh Business School 3/1 .4.4 3.7.2 3.1 3.5.5.3 3.1 3.6.7.3 3.3 3.3 3.1 3.2 3.6.3 3.

The project manager has to be able to evaluate fully all the relevant risk information in order to make an informed decision that gives the best balance of potential favourable outcome against potential negative outcome. The same consideration applies to project management. Human beings naturally consider risk and reward as part of the decision-making process. and so on. Risk is an inherent factor of virtually every human endeavour. the racetrack conditions. and identify the risks that are present. The project manager has to make decisions under conditions where risk is an everyday factor. All projects are subject to risk of one kind or another. the human reasoning and evaluation of any particular event is based on decision making within the limits of what are acceptable and non-acceptable outcomes. the project manager has to be able to look at the project and its environment. People evaluate potential risks and rewards when deciding on whether or not to do something. This module considers the origin of risk and briefly considers how the human thought process addresses risk. who is playing poker.Module 3 / Project Risk Management Review Questions Mini-Case Study 3/74 3/79 3. Between these two extremes. less structured and formalised approach to assessing the potential risks and rewards of folding or playing. The consideration is not always formalised and may occur at a subconscious level. Risk analysis can therefore be considered as a basic function of the human cognitive process. risk and uncertainty. A good project manager also has to be an effective risk manager. Projects tend to be complex and one-off. They may operate within an environment that is characterised by uncertainty. but there is a difference between losing what he or she can afford and losing what he or she cannot afford. The project manager also has to be able to transfer or reduce unacceptable risks and then set up monitoring and control systems so that the residual risk can be managed effectively. The gambler does not like to lose. These outcomes might include the fitness of the horse.1 Introduction This module introduces the concept of project risk management. Another gambler. If a gambler is placing a bet on a horse. In order to do this. The possible gains are then balanced against the possible losses. and a subjective (or objective) decision is made. The ability to be able to identify and control risk is a primary project-management function. he or she might consider a whole range of variables that relate to the possible outcome of the race. the competition. It goes on to look at decision-making under conditions of certainty. The module then explores the basic 3/2 Edinburgh Business School Project Management . A project manager is therefore an inherent risk taker. The human mind considers a risk as a form of model in which possible events and outcomes are considered in terms of possible actions. and the project manager has to be able to manage this risk through the life cycle of the project. might have no idea of what the competition has to offer and uses a more intuitive.

2. A basic knowledge of the latter is necessary as this is fundamental in the ways that risks are considered in decision making. It is generally not feasible to design everything for the worst-case scenario.1 Background to Risk Introduction This section introduces the concept of risk and relates risk to decision making. though. The designers of these installations realised that the energy source was inherently dangerous. the basic components of a risk management system. the concept of risk management. the difference between certainty. people before that were of course just as familiar with the concept of risk as is the modern reader.2 3. and the worst-case scenario would be where everything goes wrong at the same time. ‘Risk’ as a word originates from the French word Risqu´ e. meaning ‘daring’. risk and uncertainty. 3. Risk management as a discipline really evolved with the design and development of the first commercial nuclear reactors for electricity generation in the USA and UK in the 1950s. It only entered the language around 1600. The English word risk is actually of fairly recent origin. Project Management Edinburgh Business School 3/3 . Things could go wrong in different combinations. Learning Objectives By the time you have finished this module. 3. you should understand: • • • • • • what risk is and why it is important. They also quickly realised that it was no good looking at single events. The English word ‘risk’ first appeared in contracts and insurance assessments around 1750. it is often prudent to do so. the consequences of any kind of major failure could clearly be catastrophic. It can be very difficult to predict and assess risky outcomes accurately.2 The Concept of Risk Risk is all around us. it plays a part in virtually everything that we do. They realised that the design of the systems and containment used for the reactor and all associated areas had to be carefully considered and analysed from the point of view of what could go wrong. how decisions can be made under each condition.Module 3 / Project Risk Management components of a generic management system and considers the association between risk and contracts.2. but in the case of nuclear power. the basics of contract theory and how contracts are used to transfer risk. It then goes on to consider the basic conditions under which decisions can be made and links these to the human cognitive process. where the results of a single or multiple systems failure could be catastrophic.

2 was designed without a containment vessel. even thought it is extremely unlikely that it will ever happen. but entirely different individual probabilities of occurrence and effects. rock climbing. the probability of it occurring and the effect if it occurs. The reactor house contained other reactors and also the reactor control-room areas.Module 3 / Project Risk Management The Chernobyl nuclear reactor explosion in the Soviet Union in 1986 was one example of a situation where the designers did not allow for the worst-case scenario. even if the consequences of errors are relatively minor. The designer can. the plant managers would probably be happy to spend a large amount of time and money training people. uncertainty. The chances are that the designers of the nuclear plant will be prepared to spend a great deal of time and money building in systems to control any such leak. but the consequences could be very great if it were to occur. Risk is therefore a function of the event. Both failures could have the same level of risk to the operation of the plant. For example. Risk in our context is a measure of the probability and consequence of not achieving a specific project goal. Chernobyl No. The safety systems could be overridden and the cooling systems could be manually closed off. gambling. a radiation leak in a reactor resulting from a mechanical failure might be of very low probability. 3/4 Edinburgh Business School Project Management . If the reactor blew. For example. getting married. This really depends on how seriously the helicopter is likely to be damaged from a range of different weapons that might be used against it. Conversely. consequences) Two different events might therefore carry the same risk. it blew straight into the reactor house. These considerations clearly constituted a series of individual risks and an overall collective risk. speculative investments. Again. entering a relationship. human error might have a lower impact. The first level equation for risk relates the probability of an event occurring and the consequences of that event occurring. a combat helicopter designer has to consider how much armour and duplicate systems to put on the helicopter. Obvious activities that carry significant risks are: • • • • • • driving an automobile. Risk can be considered from many perspectives and we are all familiar with risk in our everyday lives. However. but may be much more likely to occur. This is almost impossible to say because it depends on so many variables. The end result was the worst nuclear accident in history. however. there could be some considerations where it is virtually impossible to identify a probability of an event occurring. The legacy and full long-term effects are difficult to evaluate in detail but are still being felt today. This relationship is sometimes known as the first level equation for risk and can be expressed as Risk = f (event. It therefore depends on both the likelihood (probability) of an event occurring and on the consequences (impact) if that event should it occur.

These are the significance (or severity) of the enterprise’s exposures to the realisation of different events (that is. The greater the potential change in performance (positive or negative). The impact of a risk and the probability of it occurring can be considered in terms of the exposure of the organisation and the organisation’s sensitivity to a particular risk profile. the organisation shies away from encountering it. effective risk management allows the risk to be controlled to such an extent that there is no longer any need to shy away from it. increasing the odds of success for a determined bidder. the likelihood of the different events occurring. sensitivity to such items as changes in competition. Exposure arises when any asset or other source of value for the organisation is affected by changes in key underlying variables resulting from the occurrence of a risk event. and the firm’s ability to manage the implications of those different possible events should they occur. Sensitivity is therefore a measure of likelihood and impact. The source of danger is a hazard and the mitigation or defence against the hazard is a safeguard. safeguard) In this consideration. Exposure is a measure of the vulnerability of parts of the organisation to risk impacts.5. the likelihood of the event occurring is important. It is therefore sometimes prudent to consider risk in terms of the second level equation for risk: Risk = f (event. and if the risk is perceived as being greater than some minimum threshold level. hazard. Risk separates the men from the boys and the women from the girls. The first organisation to do so could potentially make a fortune in future decommissioning and dismantling fees. the greater the exposure. An organisation’s sensitivity to risk is a function of three elements. One example could be the development of decommissioning and dismantling techniques for obsolete nuclear submarines. which will be discussed more fully in section 3. so to speak. proceeding is too risky. Both level equations are equally useful determinants of risk. nobody has yet effectively dismantled one. Project Management Edinburgh Business School 3/5 . so that the risky application is able to be pursued ahead of the competition. An organisation is exposed to risk when a realised change in a variable within a given time scale will result in a change in one or more of its key performance indicators. Exposure is therefore a measure of the vulnerability of an organisation to stated risks. etc). The very difficulty and complexity of the work means that fewer rivals will bid for the work. weather conditions. There are around two hundred obsolete nuclear-powered military submarines in the world. Risk acts like a barrier to the development of effective strategy. In both equations. Events can occur under a number of different types of environment.Module 3 / Project Risk Management look at the various ‘hits’ that could occur and then make an assessment of what safeguard would be necessary in order to make the impact of the various hits acceptable. modified to some extent by the ability of the organisation to manage these variables. The risk of the helicopter being shot down is therefore a function of the hazard (loss of hydraulic power) and the safeguard (armour or duplicate hydraulic systems). Risks are evaluated in some way. However. something – or the lack of something – causes a risky situation.

However. So risk is inevitable and can be good.Module 3 / Project Risk Management Risk management is not only about competitor advantage in terms of approaching ventures that contain high risk levels. in general terms. the risk profile faced by a given organisation is becoming increasingly daunting and complex. It is always unclear what will happen in the future. Having mastered the risks that put the others off. The use of risks to create value is changing. It is possible to say that risk is the distribution of possible outcomes in a firm’s performance over a given time horizon that are due to changes in key underlying variables. and opportunities and threats can be forecast with different degrees of accuracy. As a result. the greater the range of possible outcomes from a particular decision. the risk management system becomes more sophisticated and refined. The profile of risk management and the risks defined by organisations in decision making are also changing. is the one that can take good commercial decisions. These uncertain returns can have either positive or negative values. The greater the dispersion of probable outcomes. and knowledge-equivalent capital. within the limits of its own sensitivity and degree of exposure. In addition. As more risks come within the decision-making boundaries of an organisation. the successful risk-management organisation is in a much better position to take advantage of risky ventures in the marketplace. This includes such considerations as the supply chain. In other words. the greater the risk that is associated with that decision. the decision maker acting under conditions of risk would be most concerned with the following questions: • • • • • • • • • • 3/6 What can go wrong with the project? What possible outcomes do we face as a result of these risks? Where do these risks and consequent outcomes originate? Do we have any control over these risks and if so are we using it? Are the risks and consequent outcomes related to any extent? What is the degree of exposure of the organisation to these risks? How sensitive is the organisation to each degree of exposure? Do these risks affect the achievement of the overall strategic objectives of the organisation? What response options do we have? What contingencies or emergency responses are in place? Edinburgh Business School Project Management . Effective risk exploitation (ERE) allows organisations to make use of assets and factors that are not usually measured on profit and loss accounts and balance sheets to create wealth. There is therefore a need for some effective way of managing this risk to make sure that is effectively addressed and used. The organisation that is able to develop an effective risk-management programme. Thus both positive and negative changes in key variables must be viewed as sources of risk. but the complexity of the risk environment is undeniably far greater than it was in the early 1990s. the risks themselves are changing. the higher the firm’s level of exposure to uncertain returns. Outsourcing and risk transfer has limited this to some extent. and at an ever increasing speed. intellectual property rights.

Operational risk impacts directly on strategic risk. Edinburgh Business School • • • • • • • • • Project Management 3/7 . Companies are faced with new opportunities all the time. Companies have to take risks. The company that is prepared to accept the highest level of risk may also be the one that has the opportunity to gain the greatest rewards. Market places are constantly changing and companies have to evolve in order to take advantage of the resulting opportunities or overcome the threats. The potentially most profitable opportunities usually carry higher levels of risk. All aspects of life and enterprise are subject to risk. In doing so. Risk is a function of opportunity. Risk can intimidate the competition. In some cases risk cannot be eliminated. There is no way around it. The risk management system should consider the capacity of the company to absorb the different types of risk. Somebody once said that there are few things that are certain in life apart from taxation and death. • The world is uncertain. Strategic planners consider strategic risk while operational managers consider operational risk. However. An extreme example would be an unidentified asteroid hitting the Earth in two years time and rendering all human risk management systems irrelevant. Risk is also an ally. Risk control and management is only possible up to a point. The risk universe contains risks that are foreseeable. There will always be some external risks that are outside the scope of even the most detailed risk analysis. but in most cases these opportunities come with an element of risk. Risk management provides a range of analytical tools that allow opportunity and associated risk to be analysed so that an informed decision on which route to take can be made. To take advantage of these opportunities it is necessary to accept the high degree of risk that accompanies them.Module 3 / Project Risk Management • • • • Can we match the worse case scenario? If not which scenario reaches the limit of our response abilities? What is the potential reward associated with each risk? Are we prepared to accept a risk and corresponding outcome that is beyond our limits to absorb? In addressing these questions it is advisable to consider a number of facts about risks in general. There is also a requirement to consider unforeseeable or catastrophic risk at all levels. partially foreseeable and wholly unforeseeable. Companies operate within a ‘risk universe’ and risks affect the organisation at all levels. they expose themselves to risk. Single risks should not be considered in isolation as there are intrinsic links between the various risk levels. Some opportunities carry more risks than others. No risk management system is infallible. provided they are properly identified and assessed. and that some form of monitoring and control system can be put in place there is the possibility of effectively managing them. Risk management operates at all levels.

Perception of risk varies from person to person and in relation to the potential effects of the risk event. Once interpreted and after subjective assessment through attention. It is particularly significant in a project context where the work is typically complex.2. Short-term memory stores the basic pattern recognition information. When a human brain is presented with a stimulus. together with all other characteristics upon which a subjective appraisal and decision can be made. This information could be visual. a second process is taking place. It does not need to see every joint and screw. The fact that it sees a flat surface with four legs is enough to convince it that it is seeing a table.3 The Human Cognitive Process Pattern Recognition and Attention Decision making and risk are elements of the human cognitive process. The brain recognises whether or not it is seeing a table because it has seen tables before. It takes the information that is incoming and filters out any unnecessary information so that only that information relevant to the decision is considered. It then compares that information to previously stored information in order to make an assessment of what the new information represents. the human cognitive process involves a number of distinct processes. and does not form part of a repetitive cycle. This information will be used again when the brain is faced with the decision of whether or not to stand on a table. The attention process acts as a kind of filter.2.Module 3 / Project Risk Management Risk is therefore both a good thing and a bad thing. but it is also a threat if not properly evaluated and managed. This is called attention. Efficient subjective risk assessment has evolved as a powerful positive ability. the attention process will ignore the colour of the table. In assessing risk in decision-making. but it will consider the size of the table top and the thickness of the legs. any relevant information is then stored in the brain’s longterm memory. As pattern recognition occurs.1 3/8 Edinburgh Business School Project Management . A project manager has to be a good risk manager. The first process is pattern recognition. In humans. this ability has evolved strongly as it has been a very effective aid to survival. The next process relates to memory. Some information becomes permanently fixed in the long-term memory. People make decisions in relation to perceived rewards and risk. 3. This process is where the brain takes incoming information and stores it temporarily at a superficial level. aural or other.3. The decision-making process is largely dependent upon perceived rewards and risks. a certain amount of information enters the brain. 3. In deciding whether or not to risk standing on the table. It is the driving force behind innovation and enterprise. subject to change. Most aspects of the human cognitive process make a subjective evaluation of risk. and which relate directly to strength or bearing capacity.

3 Risk Forecasting and Prediction Momentum Bounded rationality therefore uses knowledge of past events to assess a current risk in making a decision.3. Edinburgh Business School Project Management 3/9 .3. There will be limits or degrees of freedom that are open to the decision maker. even through they look like all the others. Experience gained in the past is used to analyse and forecast what might happen in the future. but 5 per cent might be defective and it will not be all right to stand on those tables. possible actions are subject to the constraints of acceptable outcomes. It is based on the philosophy that a being will generally opt for rational behaviour within constraints. and satisfactory outcomes are not necessarily optimal outcomes – they are merely acceptable outcomes within the bounded rationality of the process. if it is highly structured. The decision maker than rejects any action that leads to unacceptable outcomes and considers those options that lead to acceptable outcomes. all decision making and risk consideration will be evaluated within some kind of parameters or constraints. It may be non-programmed if it is flexible. Decisions can then be made based on past experience and current information. This is the concept of risk forecasting. will be naturally preferred to illogical and irrational ones. It might be generally all right to stand on a certain type of table. In addition. based on using data from past experience in order to allow extrapolation as a basis for predicting future trends.2 Bounded Rationality The approach to information processing is known as bounded rationality. and therefore logical and rational outcomes. The decision maker within bounded rationality therefore looks at all the possible actions and all the possible outcomes and separates outcomes into acceptable and unacceptable outcomes. In relation to risk forecasting.Module 3 / Project Risk Management 3. possible to subject it to complex modelling as in chaos theory. In other words. an area that is perhaps best evaluated using a combination of modelling and subjective approaches. based on pattern recognition and learning. In addition. and this knowledge is fuzzy (non-specific). Acceptable outcomes can be considered as goals of the decision maker. reactive and based on limited pattern recognition from past events. the decision maker has limited knowledge of the prospective outcomes from the decisions. we can generally say that it is: • • • • • based on experience. Most cognitive processes will be based on reasoning. and is replicable. the decision-maker does not know what the precise outcomes from a decision will be. The decision-making process itself may be programmed. as much subjective as objective based.2. In addition. 3. based on considerable past experience. This assumes that acceptable outcomes from the past will continue to be acceptable outcomes during the current evaluation process.2. although it is not restricted to complex mathematical modelling. The relationship between possible actions and acceptable outcomes then determines what action to take.

what happened in the past and is happening in the present will continue in the future unless something happens to change it – known as prediction momentum. Time limits. the overall accuracy of the prediction could be reduced. • Accurate data. It is important that the project manager attempts to predict the future and identify possible events that are outside his or her experience.Module 3 / Project Risk Management In other words. The more accurate the data. The future is uncertain. Some important considerations are given below in relation to forecasting. Various forecasting techniques can be used and each has strengths and weaknesses. The longer the time scale. the accuracy of any prediction model is a function of the time scale that is required. Vision. even in the most careful predictions. the more difficult it is to make accurate predictions. The New York Harbour Authority (owners of the World Trade Centre twin towers) only insured one tower as the likelihood of both towers being destroyed at the same time was considered too insignificant for consideration. If fewer resources are provided. The decision maker infers what the future is like before the proposed action. it will roll along indefinitely with constant momentum. In the event both towers were destroyed on the same tragic day and the New York Harbour Authority were faced with a massive loss. Most organisations store formal records and most individuals retain relatively accurate records and memories of their own experiences. if there is no friction from tracks or air. This is of course not an exact science. Intuition and bias are powerful influences on any forecasting application. It can be very difficult to erase them from the equation completely. They were not based on any reasonably connected chain of events. Generally. Vision is an important attribute. a decision maker uses a two-stage process. This is a particularly difficult area. Cost. which states that any body will continue in its present state unless some other force acts upon it. together with any wind and air resistance. However. The terrorist attacks on New York on 11 September 2001 were totally unforeseeable. In developing a forecast. It can be very expensive to provide all the resources that are required. Any forecasting technique is only as accurate as the data used in developing and operating it. This is analogous to Newton’s second law of motion. A runaway train coming down a hill onto a stretch of level track will eventually stop because of the friction acting on the wheels and bearings. some unexpected mutation may affect the predictions. and the decision maker may make wrong assumptions and inferences. Edinburgh Business School Project Management • • • 3/10 . Detailed and complex forecasting is a labour-intensive endeavour. the more accurate the prediction. In addition. More and more variables and mutations come in to the equation as time continues. and also infers what the future will be like after the proposed action.

Intuition is a combination of experience and extrapolations forward. He or she can then combine the two and project the situation forward to decide on the best course of action.Module 3 / Project Risk Management 3. It is an example of reasoning where the move forward equates to more than the sum of all the individual components that made it possible. The extrapolation from known to unknown often includes large areas where definite information is lacking. Project Management Edinburgh Business School 3/11 .6. In most real applications.3. A marketing team may truly believe that their company’s product is better than it actually is because they have been committed to selling it for a long period of time.3. There will always be an element of risk in any enterprise. 3. the decision maker looks at a prediction model and then makes a decision based on his or her intuitive reasoning. but the intuition and training of the pilot are necessary when the actual landing is in process. Once the residual risk is at an acceptable level. This section considers some basic approaches to handling risk.1 Risk Handling Introduction So risk is all around us and it is essential for the propagation of enterprise and innovation. the decision maker can look at all the data and information that have been stored in his or her long-term memory. Risk that is not acceptable is transferred or reduced in some way. It is an example of pooled interdependency within the cognitive process. and also at the pattern recognition information that is arriving in relation to the current situation.2.3 3. An airline pilot has a lot of instruments to help him or her land the plane successfully. Fans at sporting events may wrongly believe that their team is better than the opposition because their senses of loyalty. This is done by deciding what level of risk is acceptable and what level is not acceptable.4. especially if something goes slightly wrong or if last-minute corrections are needed. Bias is the tendency for a person or group to misinterpret data or observations because of their own perceptions or outcome preferences. The key factor is to manage risk. Companies store and use collective experience in much the same way as individuals. 3. By using experience. This section introduces the idea and establishes the basic links between risk assessment and risk control. Intuition can be both individual and organisational. and this characteristic is not going to go away. association and desire to see the team win cloud their better judgement.4 Intuition and Bias Intuition and bias are major determinants in how successful forecasting models are in both application and outcome.3.2 Risk Assessment and Control Risk analysis is discussed in more detail in section 3. it is managed so as to ensure that it does not affect the performance of the project and/or of the organisation as a whole.

Risk management is a strategic approach. Risk analysis involves the determination of the probability of individual risky events occurring. 3/12 Edinburgh Business School Project Management . Total elimination of risk is rarely achieved and is often impossible. There is a common tendency to believe that the production of a full and detailed risk assessment is sufficient. People often assess these characteristics as part of the risk analysis process. it is important to realise that a risk management strategy should be developed in detail for a project before the project actually starts. Feedback is the process where the results of occurred risks are analysed and any results and items for use in future strategies are fed back into the system. As shown in Figure 3.1. Risk handling is the process of dealing with risks. Therefore. risk assessment can be viewed as part of the risk analysis element (itself part of risk control). the risks have to be handled in some way in order to reduce the likelihood of individual events occurring. This concept forms the basic elements of a risk management system. Within each of these categories there are four elements. it can involve highly complex objective analysis. There is a tactical element involved as well. handling and feedback are often referred to collectively as risk control.Module 3 / Project Risk Management There are different types of risk. Project managers often spend a great deal of time and effort on the risk assessment element of risk management and completely ignore risk control. and also of establishing some measure of the potential consequences of each event occurring. the sooner it is done the lower the overall level of uncertainty surrounding the project. Although risk assessment can be carried out at any time before or during a project. Accordingly. Risk assessment must precede risk control in order for the control phase to be effective. While this assessment is often subjective. Risks also have different characteristics. However. It is not sufficient to identify and analyse the risks. the two principal activities of project risk management are the assessment and the control of risk. the strategy being implemented as early as possible in the life cycle of the project. the assessment process acts as a means of evaluating the risk that remains so that some kind of monitoring and control system can be set up. Risk assessment is part of the collective risk analysis process. together with some kind of monitoring and control system to assist with the management process. Figure 3. Risks have to be calculated and analysed in advance and then monitored against performance to identify where risks are changing and how effectively they are being managed. Risk feedback is an essential section in the process. Even though. Risk analysis. the remainder of this section will consider risk management as a two-stage process comprising risk assessment and risk control. many authors subdivide risk management into two parts along those links.1 shows the basic structure and components of a project’s proper risk-management programme. Risk assessment and control have to form a part of a long-term operational process. as stated above. since responses may depend on the specific nature of the occurrence.

a constraint that the project must be finished in time to reflect a new piece of legislation is easy to understand.1 Effective risk management 3. the quality of the work. Manpower constraints such as the availability of skilled staff at the critical phase of the project. but it is important that they are recognised and understood. It is Project Management Edinburgh Business School 3/13 . common sense must therefore be applied to ensure that the process of risk assessment is restricted to attempting to select only those areas of the project with the most severe constraints and the greatest uncertainty. This is highly impractical because the cost and time required to carry out such an assessment would be prohibitive. The elements are shown in Figure 3. budgeting and estimating. are often more uncertain. Risk has been defined previously as a combination of uncertainty and constraint. forecasting.Module 3 / Project Risk Management Project risk management Project risk assessment Identify risk Project risk control Measure and control risk Respond to risk Mitigate residual risk Establish contingencies Analyse risk Classify risk Prioritise risk Figure 3. The assessment process allows the risk taker to develop a risk typology. determining the uncertainty in a particular project could just about include every aspect of that project. This can be based on probability and impact or on safeguard and hazard. For instance. the schedule to project completion.2 as separate branches of the same tree.3. or the safety of the project.2. which implies that very little in the project is certain.1 Elements of Risk Assessment Risk assessment is about identifying and assessing all potential risk areas within the project. The essence of project management is planning. The impact is the severity of the effect on either the budget. It is nevertheless important to remember that the process is in fact an iterative one and that risk assessment is only complete when the assessors and project manager are satisfied that all undetected risks are insignificant. Constraints are generally difficult to remove. Thus. Whether the severity of impact of the risk or the probability of the risk occurring at all is high or low is a matter for the judgement of the risk assessor and the project manager. It is probably the most difficult phase of the project risk-management process.

3/14 Edinburgh Business School Project Management .2. In modern business. but the consequences of an occurrence on these branches is less than it would be for a critical activity. rabbits can grow into sharks if you don’t watch them carefully! Activities on the project’s critical path (see Module 5) should come under particular scrutiny because any risk to the successful and timely completion of these will impact on and compromise the completion schedule of the whole project.2 Elements of Risk Control Risk control involves the thorough investigation of the entire project and will include reviewing the project’s plans.3.2 Elements of project risk assessment 3.Module 3 / Project Risk Management difficult to make this anything other than subjective. documents and contract to identify all possible areas where there may be uncertainty or ambiguity about what is proposed or the method through which objectives are to be achieved. but practice and experience will increase a project manager’s skill in forecasting the probability and impact of risk. Risk control is particularly important in monitoring the evolution of risks. Project risk assessment Identify risk Analyse risk Classify and prioritise risk Propose risk response Analyse residual risk Figure 3. it is imperative that any such evolutions are monitored and controlled. The risk assessment should include non-critical branches of a draft master schedule as well. The performance of individual sections or activities where risks have been identified is then monitored to ensure that risk is being minimised and to gauge the magnitude of any changes in the risk status of the activity. Because risks change over time in terms of probability and impact. The constraints inherent in the project must underpin all these investigations and should be considered.

For example an interruption to the power supply could be avoided by the provision of a back-up power supply.3. Some of the sources are easier to see beforehand than others. Control requirements will vary depending on the criticality of the risk element and on the relative power and importance of the activity as part of the greater whole. the power level of the individual. Loss of all system records could be Project Management Edinburgh Business School 3/15 . loss of orders. internal malicious damage. the immediate area of authority of the individual.Module 3 / Project Risk Management 3. The possible effects will also vary and can to some extent be provided for ahead of the event. infection by malicious virus. For example. The sources could be: • • • • • • • • power failure. interruption of web page. Any person’s perception of risk depends on numerous factors. will have a source and an effect. absence of key IT support staff. use of outdated protection systems. requirement to re-train staff. there could be numerous potential sources and numerous different effects.3 Risk Identification Risk identification requires different approaches and considerations by different people within the project. delays in making or receiving payments. The effects could be: • • • • • • • • • • loss of system records. For any given event. as an occurrence or event. the risk event could be failure of a server-based network within an office. interruption in operational capability. loss of future work because of the interruption. The risk itself. including: • • • • where the individual is in the organisation.2. lack of back-up and stand-by provision. defective hardware. Defective equipment is more difficult to protect against. the responsibilities of the individual. but could still probably be detected early by the provision of proper inspection and maintenance procedures. requirement to purchase replacement equipment. disruption of related services. loss of reputation. defective software.

changes may have occurred that render parts of the estimate obsolete. are very difficult for an individual to prevent. The risk may be that ‘Task A has been underestimated’. The project itself is one component or element in the overall strategy for the organisation. the allocated resources may be unsuitable or lacking. Examples of uncertainties leading to the conclusion that task A has been underestimated include the following: • • • • • • • • • the estimator may be new and therefore unfamiliar with company practice.3.Module 3 / Project Risk Management allowed for by ensuring accurate back-up of all files on a regular basis. Risk identification can also be linked to project life cycle phases. total project risk will diminish as the project progresses. Loss of future work as a result of loss of reputation is more difficult to guard against. These strategic risks are long-term and affect the company as a whole rather than individual projects. This is because more and more information becomes agreed and the scope for changes resulting in risk diminish. errors in specific contract documents. such as accidents caused by other drivers. late changes do still occur. Some risks are more controllable than others. Others. the information used as the basis for the estimate may be incorrect. There is a clear distinction between project risk and strategic risk. It should be clearly understood that statements such as ‘the project will run over budget’ is not a result or impact of a risk and is not the risk itself. Edinburgh Business School Project Management 3/16 . in that people can make varying efforts to try to avert them. the cost of individual resources may have increased. Some events can be prevented to some extent. the estimator may be optimistic. such as avoiding car crashes by regularly maintaining a vehicle. the estimator may have made incorrect assumptions. Project risk is limited to those aspects of risk that are considered entirely in relation to the project. simply because any required changes tend to become more and more expensive as more and more project information becomes agreed and fixed. and they tend to be increasingly expensive as the life cycle continues. The risk assessor will consider all aspects of the project to identify the risk that may have the impact of a budget overrun. The project faces one set of risks through its life cycle.3 Project and Strategic Risk There are various risk classifications. However. Generally. cost increases caused by changes in individual supplier prices. the time required (and therefore the cost) to complete an activity may have increased. Examples of project risks include: • • • delays caused by bad weather. the estimator may have made errors. These risks will generally be of a different nature to those faced by the organisation as a whole in executing its strategy. 3.

which are very difficult to consider in a form that can be used for modelling and extrapolation. Examples of strategic risk include: • • • variations in competitor behaviour. This depends on a whole range of complex and long-term variables. and intervening risks Point A is the current position. this position can be determined and described using a wide range of variables. where the company is now. some will be small. Most small to medium-sized projects are designed and implemented within a relatively short time scale. as shown in Figure 3. vulnerability. size. Strategic risk tends to be applicable over the long term.3 Current and desired positions. Some may occur and some Project Management Edinburgh Business School 3/17 . Again. It is relatively simple to analyse attendance records for employees and from that make a prediction on likely sick and absenteeism rates through the course of a project. changes in the economy. Possible delays caused by bad weather could be included as a contingency because the event is reasonably foreseeable and one accepts this risk when starting on any weather-dependent project. In charting this course. the strategic risk manager can appreciate that there will be a range of both foreseeable and unforeseeable risks that will impinge upon this course.Module 3 / Project Risk Management • • day-to-day breakdown of plant and equipment. Some will be large risks. Strategic risk is generally more difficult to manage than project risk. Errors in contract documentation would generally be covered by some kind of specific provision within the standard contract conditions. The direct route to B represents the course upon which the company wishes to progress. It is much more difficult to assess the likelihood of occurrence of a significant change in the level of competition that is characteristic of a given sector. Point B is the desired position. These would be allowed for as part of the overall project risk-management process. There are several reasons for this. where the company directors want to be in X many years time. impact of IT and new technology. and so they are unlikely to be affected by long-term changes in the political or economic environment. asset base and so on. the organisation is looking to move from (for example) current position A to desired position B. In considering strategic risk management. gearing. Strategic risks also tend to be more complex and difficult to model and assess than project risk. individual absenteeism and labour problems. The position is determined by a number of factors including market position.3. A Risks B Figure 3.

new strategies may be formed within the organisation.5. The organisation’s strategy to get from A to B is really the collective management of these numerous competing risks.4. Each one that does occur will affect the course of progression of the organisation from A to B. some have a lesser impact. D C A Risks B Figure 3. They are presumably also beyond the limits of correction that are available through the use and application of management reserve or contingencies.3 cannot be accurately determined. after which a warning is sounded. In order to allow for these variations.4 Strategy displacement/divergence The effect of those risk impacts is that the strategy course A to B no longer applies. The risks that stand between position A and position B in Figure 3. Some risks have a greater impact than the strategy foresaw. as shown schematically in Figure 3. Strategic risk management is concerned with the identification and management of these risks in order to ensure that the organisation finishes up within an acceptable distance of the original goal. the allowable margin of error must diminish. The net result is a general divergence or ‘set’ from the desired course. 3/18 Edinburgh Business School Project Management . the early shifts from course are acceptable as they remain within the overall limits of acceptability for the variance envelope. The evolution of the company has been driven off-course by risk occurrences that were greater or less than expected when the strategy was designed. As the company nears desired position B. They may affect the achievement of the strategy more in some areas than in others. most strategies allow a variance envelope.Module 3 / Project Risk Management may not. Wholly unforeseen events might affect the whole viability of navigating between A and B. These may serve to reinforce or deflect the original strategy. The later divergences – in this case C3 and D – move outside the limits of acceptability. The net result is that the company evolution suffers deflections as it attempts to implement the strategy or stay on course. In Figure 3. The variance envelope typically contracts as a function of time. In addition. This allows for divergence up to a certain limit.

although it could be argued Edinburgh Business School • Project Management 3/19 . In addition.4. operational risk. the people within the project team and the legal controls within which the organisation operates. risks take many forms and they impact on the organisation in a range of ways.4 3. Examples include the reputation of the organisation and its desire to maintain that reputation. However.5 Strategy implementation variance envelope 3. financial risk. knowledge risk. Shareholder attitudes can change quickly if dividends fall. • Strategic risk. Stakeholder risk includes the risk associated with the shareholders. corporate governance and stakeholders. business partners. Strategic risk includes risk relating to the long-term performance of the organisation. Operational risk. Some writers use different names for different types of risk. customers and suppliers.1 Types of Risk Generic Risk Headings There are of course many types of risk. Project risk is one type of operational risk. as can the economic characteristics of the country or countries in which a given organisation is operating The corporate governance risk of the organisation includes risk relating to the ethics within which the organisation operates. perhaps at the expense of innovation or new developments. The market is highly variable and can change at relatively short notice. the asset base. the broad headings are: • • • • • strategic risk.Module 3 / Project Risk Management D C3 Variance limits C1 A Risks B C2 Figure 3. Operational risk includes the process itself. Each is described further below. catastrophic risk. This includes a range of variables such as the market. The literature on risk management identifies a number of different primary headings.

• Financial risk. Each is described below. but both companies lose money.1. information management. Other types of risk can be less dynamic. These risk types are all linked to some extent. This particular risk heading is easily the most heavily covered in the literature on risk management. • Knowledge risk. which is comprehensively covered in other MBA electives from the Edinburgh Business School (and elsewhere). such as the risk associated with buying company shares. Operational risk is linked to catastrophic risk. and planning. The value of these shares could go up or down. Operational risk includes areas such as the risk of failure of a production line. Some risks produce the possibility of both positive and negative outcomes. 3/20 Edinburgh Business School Project Management . A company with insurance cover loses less than a company without insurance. People risks include risks associated with human resources and staff development. IT is an increasingly important area for many organisations. The usual precaution is to cover such risk with some kind of contingency sum or reserve.2 Market Risk and Static Risk Within the broad generic categories listed in section 3. and may be concerned only with losses.4. is outside the scope of the current work. The power failure could be caused by internal problems such as bad cabling or circuit breakers. and the end result could be a net gain or loss for the purchaser. marketing. The process of operational risk management includes the product itself. Financial risk includes market. An example is insurance.4. Most modern companies could not operate without complex computer support.2–4. Knowledge risk includes IT hardware and software. there are several specific subdivisions that can occur.4. capital structure and reporting risks. together with statutory obligations and liability. 3. knowledge management. risk can be considered in terms of outcomes. This could be precipitated by a power failure (catastrophic risk). Financial risk.Module 3 / Project Risk Management that risk management on longer-term projects should be considered in terms of strategic project risk management. These two classifications are sometimes summarised as market risk and static risk. Legal risks include contractual issues. These are discussed in sections 3. the risk of a major IT failure is the nightmare scenario for many large organisations. sales and delivery. its suitability for market demand. the difference is the amount of money that is lost. • Catastrophic risk. or external problems such as a general power failure. credit. Catastrophic risk includes risk that cannot be predicted effectively and therefore cannot be quantified accurately. Within these broad headings for risk types.

MBR is a risk to the company as a whole. Market risks can change over time and can shift between likely positive and negative values. • competitor activities. creditors. • general economic activity. Considerations of specific risk are therefore generally concerned with making sure that the company performs at a given level. One of the components of portfolio theory holds that risk takers cannot expect to gain reward for taking risks that can be Project Management Edinburgh Business School 3/21 . while market financial risk is restricted to equity holders. However. since it relates to factors that are outside the control of the decision maker and could result in positive or negative impacts. • personnel insurance. employees and all other stakeholders. It looks at the potential losses that could occur and seeks to implement safeguards and protection in order to minimise the extent of the loss. • release of new products. Like market risks. • other optional forms of insurance. and is therefore distributed among the shareholders. It is concerned with both positive and negative values. Obvious examples would include: • share flotations. Market Business Risk (MBR) arises from the company trading with its assets. • tortious liability (professional indemnity) insurance. • investment in research and development. MFR is the risk of the annual dividend falling to zero. These are business risk and financial risk. Market risk therefore provides the organisation with the potential for both profit and loss on trading. • Clearly. market risk will always remain. Static risk refers to risks that only provide the potential for losses. It is most concerned with making sure that losses or problems are minimised. Market risk is measured by changes and variations in the general marketplace. Market business risk is primarily concerned with the risk to all the stakeholders within the company. or potential gains and losses to the organisation. It is unavoidable. and the level of protection provided by countermeasures can also vary. Market Financial Risk (MFR) arises from the gearing ratio. so that equity holders make no return on their shareholdings. Obvious examples would include: • fire insurance. • third party and public liability (consequential loss) insurance.Module 3 / Project Risk Management • Market risk (business risk or dynamic risk) Market risk is dynamic. static risks can change over time. Static risk considers losses only. static risk can be reduced and controlled to some extent. Static risk (specific risk or insurable risk). In addition. The obvious example is an insurance policy. market risk can be split into two primary components. which is a measure of the financing of the organisation.

the organisation has virtually no control over it and has to predict possible eventualities and move in advance or respond once the external factors have occurred.3. if appropriate.1 and the market and static values discussed in section 3. Opening a new production line would be an example of a strategic market risk. therefore. Acquisitions and mergers provide a means of allowing the organisation to evolve into new areas. The next obvious classification system would relate to whether the risk originates inside the organisation or outside it.4. A company’s all-risks insurance policy to cover injury to persons and property would be an example of an operational static risk. it could threaten the ability of the company to survive.4. Sony is now a $20 billion company. These sectors have a reputation for being fickle. The demands of the customer base change and alter rapidly. 3. Good examples would include the popular music industry and teenage clothing. 3. Market and static risk types overlap with the generic headings discussed in section 3. and so on. By expanding the range of new areas within an organisation. In the worst case.4. such as a sudden change in statute or a change in government fiscal policy. As a consequence.3 External Risk and Internal Risk Risk can be further classified over and above the generic values given in section 3. an efficient market will not offer reward for specific risks. and more than a third of its turnover is generated from Playstations I and II and the games that go with them. An obvious example would be the emergence of Sony’s Playstation® in the games console market and its effect on the then established market leaders Sega and Nintendo. either of whom might develop and release a new product that is a direct threat to the established sales base of the company. changes in consumer and client demand. such as an increasing Edinburgh Business School Project Management • 3/22 . is to diversify.1. The organisation can reduce the effects of specific risks by insuring against them (where relevant) and by diversifying. In other words.4. This applies more in some markets than others.4. The organisation has no alternative other than to respond to the risks as they appear. the government. This includes the actions and strategies of ‘new kids on the block’ and established competitors. and demand can change greatly with little or no warning. The best strategy. Other examples might include a requirement for a different type of product as a result of government policy or pressure groups.Module 3 / Project Risk Management avoided. the organisation spreads the specific risk and makes the system more resilient against market-risk shocks. Market demand risk. Some obvious external risks are listed below: • Competitor risk.2. Reward can only be expected from taking market risks. External risks could originate from other organisations.1 External Risk External risk originates and operates outside the organisation.

In particular. which are aimed at a specific problem or Edinburgh Business School Project Management 3/23 . The company made a significant profit in 2000 and declared a dividend of around 21p per share in that year. Innovation risk. Shareholder risk. A good example is the PC market in the UK. Statute risk. it can affect the company’s ability to raise capital.Module 3 / Project Risk Management • • • • • demand in the UK for unleaded and low sulphur petrol as a result of the publicity and tax changes related to global warming. Typical examples would include the decision of the UK government to retain the pound and not adopt the euro. Government fiscal policy and the consequent performance of the economy can make the difference between success and failure in a new venture. Exposure risk. which further discouraged both UK and overseas tourists and had other negative effects on the UK tourism industry. etc. A firm that depends on shareholder equity has to keep the shareholders happy. Mobile telephone manufacturers have adopted a similar strategy. Computer manufacturers have to be able to deliver constant improvement and development or they will be unable to compete. coupled with a strong UK pound. has had an effect on manufacturing companies that export manufactured goods. High levels of borrowing could result in problems if interest rates are suddenly increased as a result of government concerns about inflation. If shareholder confidence declines. such as interest rate changes. Increasingly. Political risk. This. Governments constantly change existing statutes and introduce new ones. fast-track change and innovation are affecting risk strategies. The government of the home country and of overseas countries where the company has expanded can represent a major risk. memory storage. Again. By 2001. This effect was multiplied in the UK in 2001 by the outbreak of foot and mouth disease. Companies sometimes have to put shareholders in an elevated position when it comes to declaring the dividend. All companies are exposed to different levels of risk. the effects on the company can be significant. One could argue that this dividend was simply not justified by the performance of the company. this is more pronounced in some industries than in others. Factors such as borrowing and gearing ratio will affect the firm’s exposure and its ability to survive changes in the environment. and different risks will affect them in different ways. as tourists can get fewer pounds for their own currencies. An example is Railtrack in 2001. The strong pound has similarly had an effect on the tourism industry. as a result of extraordinary items involving major investment in the railways infrastructure. Railtrack made reduced profits but still paid the same 21p dividend to shareholders. games handling. These can affect the profitability of affected organisations. In some cases. these statutes can be one-offs. Customers have been ‘educated’ to expect constant change and improvement in processor speed.

– collateral (security) risk. as the alternatives are not viable on cost (oil) or environmental (coal and nuclear) grounds. falling sales etc. The ability to withstand risk impact depends essentially on the degree of exposure of the company risk profile. – concentration risk. – time-based competition risk. – opportunity loss risk. The effects in terms of gas reserve depletion are largely ignored. Financial risk. the company should have some control. – exchange rate risk.4. Companies that are investing in electricity generation in the European Union in 2001 more or less have to opt for gas-powered boilers. White Star Line and Pan American Airways. – health and safety compliance risk. – equity risk. water standards.2 Internal Risk There are very many possible internal risks.3. including the degree of diversification. However. This includes such factors as: – human resources availability risk. Sometimes companies might be exposed to financial risk and reputation risk equally. These companies would be able to meet the financial consequences of a big impact (compensation. reinstatement etc. – opportunity cost risk. This can depend on a lot of variables. Impact risk. • Operational processes risk.).Module 3 / Project Risk Management • issue. Edinburgh Business School Project Management • 3/24 . – tactical response risk. etc. and the sensitivity of different sectors of the company to that impact. This includes such factors as: – borrowing risk. – change risk. 3. Examples of big hits that have effectively destroyed companies include Ratners. they could also be general and could affect all areas of industry. – cash flow risk. An example would be changes in environmental legislation affecting items such as pollution emissions. – production capacity risk. These are risks that originate from within an organisation and over which. waste disposal. but may suffer grievously from the damage to the reputation of the company (future loss of consumer confidence. Some examples of this category are listed below.). – process failure risk. at least in theory. – variations in customer demand risk. Some companies are better than others at withstanding big ‘hits’. but might be far more sensitive to reputation risk.

Module 3 / Project Risk Management

Management risk. This includes such factors as: – management error risk; – leadership risk; – outsourcing risk; – strategy implementation risk; – communications risk. IT – – – – – – and Technology risk. This includes such factors as: system obsolescence risk; breakdown and failure risk; fraud risk; malicious virus risk; system compromise risk; capacity limit risk.

3.4.4

Predictable and Unpredictable Risks
There are numerous other classification systems for risks. The last major classification considered here relates to the predictability or otherwise of the risk. Predictable risks are ‘known unknown’ risks, such as changes in interest rates during times of fluctuations in the economy. They can be predicted with some accuracy although not with certainty. Unpredictable risks are the ‘unknown unknowns’. These cannot be predicted with any accuracy. An example would be the economic instability in US markets caused by the close-run presidential election in December 2000, or the terrible events of 11 September 2001. A dynamic internal unpredictable risk could therefore be a project status change. The organisation might start a project and give it top priority. However, another project might start up immediately afterwards and this new project might be given top priority. This is a dynamic risk in that it could increase or decrease the overall performance and effectiveness of the project. It is clearly internal as the status relates only to the company portfolio. It is unpredictable as it could not have been foreseen at the time that the initial project was implemented.

3.5

Risk Conditions and Decision making
Risk assessment and control are really tools for decision making. They allow the decision maker to consider the various types of risk that apply to a particular case and weigh up the situation before a decision is made. Risk is intrinsically linked to decision making. A decision maker instinctively thinks over the risks associated with a decision that he or she is evaluating. Managers have to make decisions all the time and in doing so they evaluate risk. Some of these decisions are made under different circumstances or conditions than others. The conditions under which a decision is made is crucial to the success of the outcome. There are generally three main conditions under which decisions can be made. These are:

Project Management

Edinburgh Business School

3/25

Module 3 / Project Risk Management

• • •

conditions of certainty; conditions of risk; conditions of uncertainty.

Each is discussed further below. • Conditions of certainty. Conditions of certainty apply where the outcome is known. If a person throws a stone in the air, it can be forecast with certainty that it will always fall back to Earth. One could argue that there are other possible outcomes. Theoretically, if one could throw the stone hard enough it would go into orbit, but this would be outside the limits of what is reasonably feasible. It would therefore be reasonable to say that if a person threw a stone out over a very large glass roof, the stone will hit the glass at some point and damage will occur. This is a ‘known’ event. It is foreseeable from the information that is available to the decision maker and its occurrence can be forecast with certainty. Conditions of risk. Conditions of risk apply where there is a reasonable probability that an event will occur and where some kind of assessment can be made. These are the ‘known unknown’ events mentioned in section 3.4.4. An example would be a cricket captain considering the weather. In England it will definitely rain at some point – probably soon. ‘Soon’ means different things to different people. It also means different things in different seasons and in different parts of the country. The captain therefore knows that it will rain (known) but he or she does not know when (unknown). This is therefore a risky event, and is a ‘known unknown’. It can be forecast with reasonable accuracy but it is not a certainty. Most risk management and decision making take place under conditions of risk. The degree to which the information available constitutes a risk will vary depending on the nature of the application. It is generally possible to transfer some risk associated with conditions of risk by taking out some form of insurance policy. Conditions of uncertainty. Conditions of uncertainty apply where it is not possible to identify any known events. Decision making under conditions of uncertainty is therefore concerned with wholly ‘unknown’ events. Considering the weather, this would apply to the likely occurrence and impact of a wholly unforeseeable and unparalleled storm, such as the great storm of 1987 in southern England. Under conditions of uncertainty it is not possible to predict outcomes with any accuracy. In general terms, most actuaries would say that risks are insurable while uncertainties are not. In order to calculate an insurance premium, an actuary has to be able to evaluate the risk in some way. If he or she cannot make an evaluation, the insurance may be refused. The main difference between the two is knowledge about the situation. The more knowledge one has, the more chance there is of being able to determine a risk as opposed to an uncertainty.
Edinburgh Business School Project Management

3/26

Module 3 / Project Risk Management

It is generally not possible to transfer risk under conditions of uncertainty through insurance, because the events concerned are not reasonably foreseeable and therefore cannot be forecast with any degree of accuracy. Some insurance policies will cover minor storm damage, but most do not cover major storm damage, simply because it is generally too difficult to predict the consequences with any accuracy and therefore to calculate a level of risk for the insurer. So what is the relationship between conditions of certainty, risk and uncertainty? The same decision may have to be made under each of the conditions and the outcome may be different depending on the nature of the condition. Under conditions of certainty, there is no risk and therefore the decision is easy. Under conditions of risk, the outcome is not clear, but the risk can be evaluated in some way. Under conditions of uncertainty, risk cannot be evaluated with any accuracy. Under the last set of circumstances, the decision maker can either adopt some kind of strategy that depends on the nature of the condition, or he or she can attempt to convert the conditions of uncertainty into conditions of risk by some kind of subjective assessment. This process is discussed in more detail in the examples shown below. 3.5.1

Conditions of Certainty
Decision making under conditions of certainty implies that the decision maker knows with 100 per cent accuracy what the outcome will be. In other words, all the necessary decision-making data and information are available to assist the decision maker in making the right decision.
Table 3.1 Pay-off matrix for decision making under conditions of certainty
Profit for each strategy and state of nature Possible states of nature N1 = up Strategy S1 = A S2 = B S3 = C £100 000 000 £150 000 000 £200 000 000 £80 000 000 £100 000 000 £160 000 000 £60 000 000 £80 000 000 N2 = even N3 = down

−£100 000 000

Conditions of certainty can be represented using a pay-off matrix, as shown in Table 3.1. The pay-off matrix simply shows alternative strategies (S1, S2 and S3) against different states of nature (N1, N2 and N3). In this case the strategies relate to different states of the economy. The decision maker has no control over the states of nature as these are wholly controlled by external forces. The decision maker therefore cannot influence them; he or she can only foresee them and develop a strategy to be implemented in each case. The strategies are therefore really a statement of the risks that the decision maker is prepared to tolerate. In Table 3.1, strategy S3 will bring in a return of £200 million if the economy goes up; it will bring in £160 million if the economy stays level; and it will result
Project Management Edinburgh Business School

3/27

Module 3 / Project Risk Management

in a loss of £100 million if the economy falls. Strategy S3 therefore delivers the best return in conditions where the economy increases or remains level. A pay-off matrix based on decision making under conditions of certainty requires two primary assumptions: first, that there will be one dominant strategy or risk that will produce larger gains or smaller losses than any other risk, for all states of nature; and, second, that there are no probabilities assigned to each state of nature (equal likelihood of occurrence). 3.5.2

Decision Making under Conditions of Risk
In most practical situations, there is no single dominant strategy for all eventualities. In general terms: • • higher profits = higher potential risks. higher profits = higher potential losses.

In the absence of a dominant strategy, a probability is assigned to each individual state of nature. This is shown in Table 3.2.
Table 3.2 Pay-off matrix for decision making under conditions of risk
Profit for each strategy and state of nature Possible states of nature N1 = up Probability = 25% Strategy S1 = A S2 = B S3 = C £100 000 000 £150 000 000 £200 000 000 £80 000 000 £100 000 000 £160 000 000 £60 000 000 £80 000 000 N2 = even Probability = 25% N3 = down Probability = 50%

−£100 000 000

The expected payoff for each strategy now is the sum of the payoffs for each state of nature multiplied by the probability of that state occurring. Thus:
S1 = (100m × 0.25) + (80m × 0.25) + (60m × 0.50) = 25m + 20m + 30m = £75m S2 = (150m × 0.25) + (100m × 0.25) + (80m × 0.50) = 37.5m + 25m + 40m = £102.5m S3 = (200m × 0.25) + (160m × 0.25) + (−£100m × 0.50) = 50m + 40m − 50m = £40m

Thus, for the probabilities stated, strategy S2 gives the best potential return. 3.5.3

Decision making under Conditions of Uncertainty
The difference between conditions of uncertainty and conditions of risk is that under risk there are assigned probabilities that relate to the ‘known unknowns’. Under conditions of uncertainty, these probabilities do not apply. All possible outcomes can be identified and the related probabilities can be assessed to the best of the firm’s knowledge, but the decision maker simply does not know which event will occur, nor when. A firm does not know in advance the magnitude and direction of change in the value of a key variable (e.g. competitor behaviour). Changes in variables

3/28

Edinburgh Business School

Project Management

Module 3 / Project Risk Management

create uncertainty for the enterprise only when its sources of value are exposed. It is therefore essential to be able to identify the sources of uncertainty that relate to each of the firm’s exposures. There are several obvious sources of uncertainty. These might be externally driven (environment), internally driven (process) or decision-driven (information) sources. Externally driven (environment) sources would include all external factors such as inflation, the general level of economic activity, changes in interest rates, demographic changes, competitor changes, revisions of statute, and so on. Internally driven (process) sources would include employee attitudes, motivation, loyalty, the implementation of new technology and changed working practices, new products, innovation, changes in the supplier and client base, etc. Decision-driven (information) sources would include typical elements of corporate strategy and strategic planning such as new market analysis, mergers and acquisitions, research and development, investment, etc. Under conditions of uncertainty, it is not possible to predict what state of nature will apply. One of several uncertainty criteria may then apply, as described next.

3.5.3.1

Hurwicz Criterion
The Hurwicz criterion is sometimes referred to as the maximax criterion. In this scenario, the decision maker is always optimistic and seeks to maximise profits by an all-or-nothing approach. The decision maker is not concerned with how much he or she can afford to lose.
Table 3.3 Pay-off matrix for decision making under conditions of risk
Profit for each strategy and state of nature Possible states of nature N1 = up Probability = 25% Strategy S1 = A S2 = B S3 = C £100 000 000 £150 000 000 £200 000 000 £80 000 000 £100 000 000 £160 000 000 £60 000 000 £80 000 000 N2 = even Probability = 25% N3 = down Probability = 50%

−£100 000 000

Using the data presented in Table 3.3, a decision maker using the Hurwicz criterion would elect for strategy S3 as this gives the maximum possible profit from any scenario. The maximum profit using strategy S3 is £200 million. However, strategy S3 is risky because there is a 50 per cent probability that state of nature N3 will apply, in which case strategy S3 will actually lead to a loss of −£100 000. The Hurwicz advocate would ignore the fact that strategy S3 also gives the greatest potential losses. Hurwicz is therefore based on maximising profits at the risk of maximum loss. It might be used by large corporations with a lot of assets that are seeking to make maximum short-term gains on investments. Fund managers might use the Hurwicz criterion in some of their short-term share transactions. Use of the Hurwicz criterion is obviously high-risk and should be used as part of a balanced portfolio.
Project Management Edinburgh Business School

3/29

Module 3 / Project Risk Management

3.5.3.2

Wald Criterion
The Wald criterion is sometimes referred to as the maximin criterion. Here, the decision maker is pessimistic and seeks to minimise losses. The decision maker is concerned with how much he or she can afford to lose. He or she will consider only minimum profits (not losses) and choose an option that maximises that value. Using the data given in Table 3.3, the decision maker using the Wald criterion would opt for strategy S2. In any state of nature, S2 still makes a minimum profit of £80 000. This figure represents the best value of minimum profits that any strategy makes under the scenario of the worst state of nature occurring; the other strategies can both return less than this in the worst case. In choosing S2, the decision maker has disregarded the potentially high profits offered by strategy S3, because the choice of S3 incurs a risk of a loss. The Wald criterion does not consider losses, only minimum profits. The Wald criterion would be selected by a person or an organisation that cannot make a loss. Potentially higher profits from more risky options are disregarded in favour of security from making a loss.

3.5.3.3

Savage Criterion
The Savage criterion is sometimes referred to as the minimax criterion. Here, the decision maker is a ‘bad loser’. He or she therefore attempts to minimise the maximum regret. The maximum regret is the largest regret for each strategy, and the largest regret is the greatest difference within a state of nature column in the pay-off matrix.
Table 3.4 Pay-off matrix for decision making under conditions of risk
Profit for each strategy and state of nature Possible states of nature N1 = up Probability = 25% Strategy S1 = A S2 = B S3 = C £100 000 000 £150 000 000 £200 000 000 £80 000 000 £100 000 000 £160 000 000 £60 000 000 £80 000 000 N2 = even Probability = 25% N3 = down Probability = 50%

−£100 000 000

Using the data presented in Table 3.4, for N1 the largest value = £200m. Therefore:
S1 regret = £200m − £100m = £100m S2 regret = £200m − £150m = £50m S3 regret = £200m − £200m = £0.

The regret values for each strategy under each state of nature are set out on the same basis in Table 3.5. In total, the following apply:
S1 = £100m + £80m + £20m = £200m S2 = £50m + £60m + £0 = £110m S3 = £0 + £0 + £180m = £180m

3/30

Edinburgh Business School

Project Management

Module 3 / Project Risk Management

Table 3.5

Regret table for decision making under conditions of risk
Profit for each strategy and state of nature Possible states of nature N1 = up Probability = 25% N2 = even Probability = 25% £80 000 000 £60 000 000 £0 N3 = down Probability = 50% £20 000 000 £0 £180 000 000

Strategy S1 = A S2 = B S3 = C £100 000 000 £50 000 000 £0

These total regret values represent the difference between the maximum possible outcome and the minimum possible outcome within the given states of nature. Strategy S2 gives the minimum maximum regret at £110 million. A Savage criterion decision maker would therefore elect for strategy S2.

3.5.3.4

Laplace Criterion
The Laplace criterion attempts to convert decision making under uncertainty into decision making under risk. It will be recalled that the main difference between the two conditions is the inability to predict probabilities in conditions of uncertainty. The Laplace criterion attempts to address this by assigning equal probabilities to each possible outcome. It does this by using subjective probabilities. Objective probabilities are based on long-term frequencies of occurrence. By recording the frequency of occurrence of past events, it may be possible to predict formally the occurrence of future events. Subjective probabilities are based on the degree of belief or confidence as experienced by the decision taker. Subjective probabilities can be deduced by comparing the required risk with a hypothetical risk. This can be illustrated by example. Assume that a company is considering the risk involved in opening a new department at a set-up cost of £0.5 million. The department might be a success or it might be a failure. If it operates successfully for a year, it can be assumed that it will make £1.0 million in fees and the company will make a return of £0.5 million on the deal. If it makes no fees, the loss to the company will be £0.5 million. This is the sort of consideration that might be developed in assessing the real-world risk. In order to develop a subjective probability for these events, the decision maker might go to experienced risk takers and ask them to evaluate the probability of success in terms of an analogy. The decision maker might offer the risk taker two options. Either go ahead and develop the new office or take another risk instead. The other risk is the hypothetical or variable risk. This could be anything so long as it has a reasonably clear probability. One example could be a bag filled with ten balls coloured black or white. The risk taker can draw one ball. If it is a white ball, the risk taker wins £0.5 million; if it is a black ball, the risk taker loses £0.5 million. Assuming there are five balls of each colour in the bag, the probability of winning is 50 per cent and the probability of losing is 50 per cent.

Project Management

Edinburgh Business School

3/31

Module 3 / Project Risk Management

The risk taker can now either pick a ball or commit to developing the department. If he or she opts to draw a ball rather then commit to the development of the new department, the perceived probability of success with the department development must be less than 50 per cent. The next stage would be to change the ratio of black to white balls. If one white ball is replaced with one black ball, the probability of success in drawing a white ball drops to 40 per cent. If another white ball is replaced with a black ball, this drops to 30 per cent, and so on. There will come a stage where the risk taker would go for the department option rather than draw a ball. At this point, the perceived (subjective) probability of success in developing the department is greater than that perceived in drawing a ball. This process allows the decision maker to engineer a variable with a known probability of success as a measure of the perceived subjective probability of success in another unknown condition. The Laplace criterion assumes that Bayesian theory applies, which states that if the probabilities of each state of nature are not known, they can be assumed to be equal. The probability of each state of nature is therefore the average pay-off value.
Table 3.6 Pay-off matrix for decision making under conditions of risk
Profit for each strategy and state of nature Possible states of nature N1 = up Probability = 25% Strategy S1 = A S2 = B S3 = C £100 000 000 £150 000 000 £200 000 000 £80 000 000 £100 000 000 £160 000 000 £60 000 000 £80 000 000 N2 = even Probability = 25% N3 = down Probability = 50%

−£100 000 000

Using the data given in Table 3.6, the probabilities relate to the payoffs. Therefore:
= £80m 3 £330m P(S2) = = = £110m 3 3 (200m + 160m − 100m) £260m P(S3) = = = £87m 3 3 3 (150m + 100m + 80m) P(S1) = (100m + 80m + 60m) = £240m

Using the Laplace criterion, the decision maker would go for strategy S2 because this gives the greatest pay-off based on the average pay-off in terms of equal probabilities of each individual pay-off.

3.5.3.5

Summary
The chosen strategies for each criterion are: • • • • Hurwicz: S3 (maximum possible profits irrespective of loss); Wald: S2 (minimum profit with no loss); Savage: S2 (minimum regret); Laplace: S2 (maximum profit based on probabilities).
Edinburgh Business School Project Management

3/32

Module 3 / Project Risk Management

The decision maker would therefore, in our example, go for strategy S2 every time, with the exception of the decision that is made on the basis of seeking to maximise profits. 3.5.4

The Need for a Risk Management Strategy
Risk management is becoming increasingly important as the business world changes. Companies have changed considerably since the early 1980s; the risks and opportunities that they face have changed in proportion. Competition and the demands for efficiency are far greater than they have ever been. Companies are now cut right back to the bone. Every possible area for outsourcing and risk transfer has already been exploited. Companies are as efficient, more or less, as they can be. New competition areas, such as concurrent engineering and time-based competition, are becoming the new corporate battlegrounds. They demand a new approach to risk taking and consequently to risk management. There is now, more than ever, a need for risk management as a collective corporate strategy. Such a risk management system needs to align strategy, production, human resources, technology, leadership and knowledge. It needs to cross functional and project boundaries and unite all sections of the enterprise in the envelope of Total Strategic Risk Management (TSRM). As with Total Quality Management (see section 7.5), TSRM has to reach all sections of the enterprise. It applies as much to packaging and delivery as it does to process and manufacturing. It needs to be holistic and pre-emptive. It has to be forward-looking and predictive rather than reactive. It is far better suited for strategic planning than for tactical response. It has to consider all the key performance indicators of the organisation, both static and dynamic. Above all, TSRM must be developed alongside, and be integrated with, strategic planning and management. It must be an integral part of the business plan. The TSRM aims and objectives must be communicated throughout the company and be disseminated through the whole organisation in whatever relevant forms are necessary.

3.6
3.6.1

The Concept of Risk Management
Introduction
Risk can be a good thing. Without risk there is no reward, and risk breeds innovation. Risk is therefore to be encouraged within an organisation, but it is also dangerous and so has to be managed. A risk management system aims to identify the primary risks that an organisation is exposed to, so that an informed assessment can be made and proper decisions made to safeguard the organisation. This concept is not new, nor is it radical in its philosophy or scope. We all evaluate risk in our everyday lives – for example, whether or not to overtake another vehicle. The brain considers the information that is provided by the senses and, based on past experience and on the risk attitude of the decision

Project Management

Edinburgh Business School

3/33

Module 3 / Project Risk Management

maker, decides whether or not to go for it. In this case, the process is largely intuitive. In fact, most risk assessment is intuitive. It is often sufficient to be aware of a risk (e.g. running out of petrol in an automobile), because of the consequences of a similar event in a different context; other forms of risk have to be modelled (e.g. running out of petrol in an aircraft). It is important to appreciate that risk management does not embrace all the risks that face a particular enterprise; it is concerned only with those that are most appropriate in the given scenario. In general terms, a risk management system must be: • • • • practical; realistic; compliant with internal and external standards; cost-efficient.

There are numerous types of risk management system in use. They tend to be perceived something like quality management systems. People often see them as being impractical, bureaucratic and expensive. In order for one to receive popular support, a risk management system must be practical – people have to be able to see that it is straightforward and effective, and above all, that it works. Like quality management systems, risk management systems can soon become extremely expensive. It is also very important that they are seen to be cost-effective as far as is possible. Most risk management systems contain five distinct areas: 1 2 3 4 5 risk risk risk risk risk identification. classification. analysis. attitude. response, control, policy and reporting.

This sequence is represented diagrammatically in the central portion of Figure 3.6 and each is described further below. 3.6.2

Risk Identification
The idea of risk identification is to find out all the risks that are likely to impact on a given project and to explore the linkages and interdependencies between them. This builds up a picture of the risk ‘profile’ that applies to a particular project and enables the decision maker to make an informed response with due consideration for the relevant risks, including both current risk and risks that are likely to occur during the course of the project life cycle. Risk identification involves the identification and assessment of all the potential project risk areas. It may include a survey of the project, customer and users’ concerns and probable areas. It should be stressed that this process must be detailed and thorough. Risk identification is the starting point for the entire risk management process. The effectiveness and validity of the risk management system will therefore depend on the accuracy of the identification process.

3/34

Edinburgh Business School

Project Management

Module 3 / Project Risk Management

Analysis Work breakdown structure Risk identification Risk checklist

Internal

Risk classification

Controllable

Probability of occurrence

Risk analysis

Impact of occurrence

Management Risk attitude

Risk-averse Risk-neutral Risk-seeking

Risk response

Risk management strategy

Risk holder

Figure 3.6

Risk management

There will always be some degree of risk in any application. The extent to which risk is accurately identified depends on a number of variables. Principal among these is the philosophy or risk attitude of the decision maker. Risk seeking decision makers may adopt an approach assuming that all goes according to plan (AGAP) while risk averse decision makers may adopt a more cautions what happens if (WHIF) approach. In addition, there will be individual project risks such as time limits, cost limits, specification, resource availability, project status, etc. There will also be technical risks, including research and development risk, implementation risk, time-scale risk, and so on. There can also be production risk, which includes risk to the effective performance of the production line, maintenance, down time, power interruption, component deliveries, packaging and product delivery. There may also be engineering risks, which relate to the reliability and maintainability of the system, together with the product quality and defect rate of the finished product. It should be remembered that not all risks are high-impact and high-probability.
Project Management Edinburgh Business School

3/35

Module 3 / Project Risk Management

However, the cumulative effect of a lot of small risks can have a similar effect to a high-impact risk. There are several established risk identification typologies. An obvious classification system for purely project risk would include the following. • Internal risks These can generally be identified by breaking the project up into separate work packages using a work breakdown structure (WBS). In most cases, the development of a three- or four-level WBS will allow identification of most obvious risk areas. External risks These originate from outside the project and relate to factors such as interest rates and levels of economic activity. They are obviously more difficult to identify and evaluate. Project risks These overlap internal and external risks. They are a feature of the specific project and of the administration and control techniques that are applied both within the company and by other organisations that impact on the project team. Obvious examples include the organisational breakdown structure (OBS), team membership, leadership, communications and so on.

Overall risk can therefore be considered as a combination of these three sources, as shown in Figure 3.7.

Overall risk identified Controllable risks Project Uncontrollable risks

Internal

External

Risk with adequate project control

Figure 3.7

Risk identification overlaps

Risks sources can often be identified in terms of objective and subjective sources. Objective sources are the sum total of past experience of past projects in relation to the current project. This source is sometimes referred to as ‘experience’. Subjective sources are the sum total of current knowledge based on current experience. An example would be PERT analysis (see Module 5). Estimates of current performance are made based on optimistic, likely and pessimistic estimates, relevant to current estimates.
3/36
Edinburgh Business School Project Management

Module 3 / Project Risk Management

Any risk has to be clearly assessed and the identification has to focus on the source of the risk rather than on the effect of the risk. The event at the centre of the risk is therefore intrinsically linked to both the source and effect. It is important that the identification process is concerned with the source of the risk rather than the event itself or the effect. This is because the risk taker can do something about the sources of the risk, but not really do very much about the event or the effects. For example, it is possible to eliminate the source of ‘badly maintained vehicle’ simply by following the prescribed maintenance manual. However, it is never possible to eliminate the event itself or the effects that a car crash can have, for these depend on external variables and consequences over which the risk taker has no control. Some risks are controllable (e.g. choosing to drive a car); some are uncontrollable (e.g. exceptionally bad weather). Some are dependent (e.g. engine size as power output requirement increases); still others are independent (e.g. paint thickness as power output requirement increases). The most obvious and widely used method for risk identification is brainstorming. The idea is that as many people as possible look at the project scenario and try to identify as many risks as possible. These include internal and external, controllable and uncontrollable, and all other forms of risk that could theoretically affect the project.

3.6.2.1

Brainstorming
In brainstorming methodology, a co-ordinator or facilitator is generally appointed. This person chairs the brainstorming session. He or she steers the discussion and tries to keep the group focused on the problem (to identify risks). Brainstorming sessions are prone to becoming sidetracked and diverted away from the original objective. The co-ordinator therefore needs to be strong, aware, and perhaps have a sense of humour. It is important that unusual or even apparently silly ideas are at least put forward. A lot of good practice started with ideas and concepts that might have looked doubtful or even absurd initially. How could we put a person on the moon without complex navigational computers? Some of the instruments on the Apollo 8 spacecraft were powered by clockwork. Most brainstorming session have a number of distinct phases: • Phase 1: Creative phase. The idea of phase 1 is to invite as many ideas as possible from the brainstorming team. The team itself should include as many project team members as possible, and also other individuals who have an impact on the project or who act as stakeholders. The co-ordinator usually extracts one idea at a time from team members. It is important that any risks or risk areas are identified. People are encouraged to think outside their own specialisation. Apparently crazy ideas should be positively encouraged. The ideas are generally written down as they are extracted from the session. No criticism or discussion is allowed at this stage. Phase 2: Evaluation phase. Once the list of ideas is complete (at least for this particular session), each one is evaluated by all members of the team. Technical expertise and experience can now be applied by individual members in order to identify
Edinburgh Business School

Project Management

3/37

Module 3 / Project Risk Management

those ideas that have potential and those that do not. It is important that ideas are not linked to individuals, so that free and open criticism and evaluation can take place. Each idea is considered in detail and a final list is formulated of those ideas to do with project risk that are regarded as having real potential and that are worth further development. It is essential to be aware that the final list is the product of collective group effort rather than a list of individual contributions. Brainstorming is widely used as a risk identification technique in high-impact areas such as nuclear power station and aircraft design. Teams of specialists are used to try to identify all possible areas where faults could occur or where problems could arise. They might also use special techniques to try and find collective agreement on where common areas for problems could lie and on what combinations of possible problems could occur at particular times. The specific methodologies for brainstorming using the Delphi technique, nominal group technique and SWOT analysis are considered in more detail in Module 7. 3.6.3

Risk Classification
Once the various risks have been identified, they then have to be classified in some way. Most work on classifying risk is linked (at least in part) to so-called portfolio theory. This considers risk classification from a financial point of view. A reasonably detailed methodology from portfolio analysis has developed, based around the portfolio theory’s beta coefficient. Generally, a share with a 10 per cent beta coefficient will on average move 10 per cent for each 1 per cent move in the market. In addition, portfolio theory considers that risk can be considered in terms of different classifications. Risk can be primarily classified in terms of whether it is market risk or static risk (see section 3.4.2). It can also be classified in terms of its area of impact or the extent to which it will affect the organisation. Some risks could only affect the company at an individual project level. Other risks might affect the whole company. Still larger risks might affect the whole sector in which the company operates, while the largest risks of all could affect the whole economic environment. The largest risk – for example a collapse in oil supplies – could have an affect right across the whole range. Risks can also have different impacts. These could relate to the extent to which they affect the organisation, or they could relate to other variables. This suggests a three-level classification system for risk: 1 2 3 risk type; risk extent; risk impact.

This idea is summarised in Figure 3.8.
3/38
Edinburgh Business School Project Management

Module 3 / Project Risk Management

Risk classification

Risk types Specific risk (insurable risk) Potential losses Fire Flood Breakdown Theft Market risk (business risk)
Potential gains and losses

Share value Sales Profitability Acquisitions

Risk source and scope Environmental risk Specific market or sector risk Specific company risk Specific company project risk Scope extent

Risk impact High impact risk Medium impact risk Low impact risk Impact extent

Figure 3.8

Risk types and impacts

Risks that affect the general environment include uncontrollable ones (such as the weather) and partially controllable ones (such as oil prices). The consequence or impact of a risk is an important consideration, expressed as: • •
Project Management

maximum probable loss; most likely cost of the loss;
Edinburgh Business School

3/39

4 Risk Analysis Once the risks have been identified and classified. It may be possible to apply controls to some of the risks that have been identified (e. The risk has to be measured and evaluated in some way. The data produced by the measurement require interpretation. but these are still open to interpretation. reliability of predictions about the event. Consider the risk attitude. Some approaches use established modelling techniques where the characteristics of the risk and the situation can be input and a prediction can then be made based on past experience. The risk attitude of the decision maker is an important consideration.g. Interpret the results. 3. All the various options should be considered. they have then to be analysed. • Step 1. Step 3. Consider the characteristics of the risks.g. The interpretation might involve extrapolation from observed data to try to make a prediction of a future outcome. Edinburgh Business School Project Management • • • • 3/40 . external uncontrollable). Consider the risks that have been identified and are controllable and what their impact is likely to be. Establish a measurement system. Risk analysis is based on the identification of all feasible options and data relating to the various risks and to the analysis of the various outcomes of any decision.6. Two different interpreters might look at the same data and results and make different appraisals. The results of the measurement process provide an indication of a prediction or possible outcome. The brainstorming or other form of risk identification should be exhaustive and all factors that could possibly affect the impact or likelihood of the risk should be identified. It is important to ensure that all possible characteristics of the risk are identified. Risks can be conveniently classified using this approach. Most risk analysis methodologies comprise six basic steps. using a qualitative or quantitative (or combined) approach. This can again be quantitative or qualitative. Different people will evaluate risks differently and will make different decisions using the same data. Evaluate all the options. It is important that all the factors that affect the risk are considered. internal controllable) while not to others (e. Step 4. cost of insuring against the event occurring. Step 5. Step 2.Module 3 / Project Risk Management • • • likely cost of covering the loss (if uninsured). Some decision makers are more or less risk-averse than others and will make different subjective appraisals of the likelihood and impact of the risk from the data given.

Step 2: Identify all possible threats and opportunities (SWOT analysis) and map the risk drivers. Other methodologies adopt a slightly different approach. Identify and brief risk holders where appropriate. A basic risk map has four quadrants. In a basic risk map.2. Step 4: Consider all available options and develop a target risk map.1 Risk Map A risk map simply shows individual isolated risks on an axis of probability of occurrence against impact. • • • • • • Step 1: Identify and source the risk and extract all relevant information.9. the quadrants are as follows: Project Management Edinburgh Business School 3/41 .4.6. The risk profile that is acceptable for retention will depend on the nature of the organisation and the attitude of the decision maker. It is basically a process of showing the relationship between risk probability and impact for a range of given risks as a function of time. Make the decision. Step 5: Assess the value added to the company by taking the recommended risk response action. although it is relatively easy to expand this to more sectors (see also section 3. An example is shown in Figure 3.Module 3 / Project Risk Management • Step 6. Step 3: Assess the probability and impact of each risk and develop the actual risk map.9 Basic risk map The process of risk mapping is sometimes referred to as risk profiling or even risk footprinting. High impact Low probability (Yellow 1) Impact High impact High probability (Red zone) Low impact Low probability (Green zone) Low impact High probability (Yellow 2) Probability Figure 3. 3. The final stage in the process consists of deciding which risks to retain and which to transfer to other parties. Step 6: Set up monitoring and reporting systems to ensure effective evolution of the risk map.3.1).

An example could be a major change that is required because of new legislation. Quadrant 4: Green zone (low impact/low probability). These risks often relate to day-to-day operations and compliance issues. These are low severity / low likelihood. but if they occur they could destroy an entire crop. They are generally insignificant and are acceptable at their present level. and they identify a defect downstream from the risk. Everyday examples would include flood damage to housing located on flood plains during a time of global warming. They are not of sufficient stature to allocate specific resources. They include items such as blocked toilets and vandalised windows in a station. If the firm cannot manage these risks effectively over the long term. In addition. The idea is that the risk map is dynamic. the time frame or time scale for consideration can be adjusted depending on the level of the organisation that is being considered. Risk A has moved from being of low impact and low probability to high impact and high probability. The best solution is to outsource the maintenance function for a fixed price so that the problem is transferred to another organisation. Cost overruns are virtually certain to occur. They are relatively unlikely. they require close attention as they include the severe effects of extraordinary events. This is clearly a very worrying transition. They represent areas that may be outsourced. Generally.Module 3 / Project Risk Management • Quadrant 1: Red zone (high impact and high probability). then avoidance strategies should be considered. These risks are often typically driven by external or environmental factors beyond management control. These are the dangerous risks. Quadrant 3: Lower Yellow zone (low impact and high probability).10. They are strategically important. 3/42 Edinburgh Business School Project Management . These risks are not as crucial as those in the red zone. No business can survive accepting these risks at this critical level over the long term. if left unmanaged. Quadrant 2: Upper Yellow zone (high impact and low probability). a risk manager should be established and a specific strategy formed. Typical examples would include basic plant and machinery breakdown. They may be generally insurable. They have to be addressed at once and immediate action has to be taken. Individual managers can rank impact and probability in terms that they are familiar with and understand. In Figure 3. and appropriate action is immediately required. These are based on monitoring and detection. Typical examples would be the effects of a severe storm on an agricultural enterprise. is as great as the risks in quadrant 2. external uncontrollable risks would produce this kind of transition. Generally. It shows the migration of certain risks over a period of time. the three risks shown have migrated over a period of time. However. such as individual buses breaking down in a large bus fleet. The net effect of these risks. Cost control procedures fall into this category. Contingency planning is particularly appropriate for these risks. Risk B has increased in impact while retaining the same probability of occurrence. • • • A risk map can be produced for any level or sector of a company’s operations.

perhaps caused by a competitor launching a major new product that is in direct competition with the firm’s own long-standing product. there is nothing that the organisation can do about this. Each of these would form a separate project and would be under the control of a separate risk holder. However. and to some extent. Its usefulness lies in its flexibility. risk identification. The target risk map has to reflect those risks that are internal and controllable. An example could be the replacement of a disgruntled senior manager. the largest internal controllable risks are product obsolescence and production capacity. In order to get from the current risk map to the target risk map. He or she may still leave the company but having been replaced. Production capacity could be increased by the phased introduction of new working practices or perhaps by a redesign and re-tooling of some or all of the production processes. It is by far the most widely used tool for risk classification. Risk mapping is a fundamental tool. leading on to the development of new products. they would have to be incorporated into the firm’s business plan and be regarded as priority areas. The largest single risk. other than change its sales strategy completely. In the example shown in Figures 3. Risk C has remained high probability but has reduced in impact.Module 3 / Project Risk Management High impact Low probability High impact High probability C Impact Low impact Low probability A B Low impact High probability Probability Figure 3.10 Risk map and risk migration An example of this could be a change in market demand. might be that of a ‘strong pound’.11 and 3. It can be closely linked to the organisational breakdown structure Project Management Edinburgh Business School 3/43 .12. Product obsolescence could be addressed by market research. Given the importance of each. Risk maps can be used as planning tools. The selected risks would be those that are controllable and internal. This risk has therefore to be retained. the impact is much lower. The difference between the actual risk map and the target risk map identifies areas where actions are needed to meet the requirements of the risk management system. The target risk map shows the risks as we want them. a strategy would be developed and risk holders put in charge of each major risk area. for example. Some risk management systems use an actual risk map and a target risk map in terms of establishing a baseline and current status methodology.

where the boundaries represent limits within which that particular risk could vary depending on circumstances. An example is shown in Figure 3. the impact of risk A varies. This kind of representation would be used where the probability of occurrence or impact of the risk could vary within certain known limits. however. risk A always stays in the ‘caution’ zone. a risk map can be developed upwards or downwards to virtually whatever level of detail is required. because the probability of occurrence is fixed.12 Target risk map (example) (OBS) for the company and to the work breakdown structure (WBS) for the project. It effectively links to the task responsibility matrix (TRM) that acts as the link between the OBS and WBS at the operational and strategic levels (see Module 5). An example of this 3/44 Edinburgh Business School Project Management . Entries on a risk map may also be shown as areas or regions. Like a TRM. For example.11 Current risk map (example) Production capacity Power failure Major plant failure Impact Labour problems Product obsolescence Day to day errors Minor equipment failure Probability Competitor innovation Strong pound Minor debt default Figure 3.13. These areas represent ‘windows’ of variation limits within which the specified risks can vary.Module 3 / Project Risk Management Major plant failure Power failure Impact Labour problems Production capacity Competitor innovation Strong pound Product obsolescence Day to day errors Minor equipment failure Probability Minor debt default Figure 3.

These can sometimes be useful in analysing different levels of variability. with progression between all four zones depending on the variability that can occur within the impact and probability limits. and by a sufficient extent to allow the risk to pass from the ‘caution’ zone to the ‘danger’ zone. Boundaries and limits can be set within specified confidence limits or sub-probabilities of occurrence. A Impact B C D Probability Figure 3. Risk C is the most variable. In the case of risk B. This type of risk is the most difficult to define and address. the probability of occurrence can vary significantly. and remains of low consequence within the defined limits.Module 3 / Project Risk Management could be a defect in a tyre. Impact C3 C2 C1 Probability Figure 3. It is usually possible to model boundaries using established statistical techniques. The effects could vary depending on the position of the vehicle on the road or the position of the defect in the tyre. Risk D has very small variability limits.14 Risk map with variability limits Project Management Edinburgh Business School 3/45 .13 Risk map with variability limits Variability limits for individual or groups of risks can be set by various techniques.

One poker player might decide to take a specific risk during play. This depends directly on the probability of a risk occurring and the impact of the risk if it occurs. A second poker player might do things differently. Risk can be modelled in its simplest form as the relationship between the probability of occurrence and the consequences. Additionally. One possible format is shown in Table 3. even if dealt the same hand. others are to be partially or fully insured. cost and quality (quality is often referred to as performance).Module 3 / Project Risk Management In Figure 3. the consequences can be measured in several different ways. full variation might occur up to and including the limits defined by C3. In general terms. However. in more extreme cases. and in the most extreme cases. The format of the risk grid will also depend directly on the attitude of the risk taker. 3. In turn. Table 3. The actual shape of the envelopes will vary in relation to the nature of the risk and the impact and probability characteristics that affect it. It would be prepared where a company is looking at a range of activities and deciding on the specific risk cover that is required. and therefore the perceived level of risk involved with a course of action depends on the attitude of the risk taker. especially in relation to whether he or she is winning or losing. there might be a 99 per cent probability that the actual risk value will fall within the area C1. The company strategy might be to cease activity in areas of high impact and high probability risk unless there are good reasons to the contrary.6. while a risk-seeking attitude 3/46 Edinburgh Business School Project Management . For example. A risk-averse attitude errs on the side of caution. risk-averse or risk-seeking. 3. Some works are to be retained.5 Risk Attitude The attitude of the risk taker is clearly an important element.2 Risk Grid A risk grid is an alternative to a risk map. Some risks may vary more or less in terms of probability of occurrence (such as poor weather conditions).14.4. The most obvious ones are time. while other risks may vary more in terms of impact (such as a faulty tyre). risk takers can be either neutral.6.7 Probability Negligible Unlikely Average Likely Inevitable Risk grid Severity Low Retain Retain Retain Part insurance Full insurance Medium Retain Retain Part insurance Full insurance Cease activity High Retain Part insurance Full insurance Full insurance Cease activity Catastrophic Retain Part insurance Full insurance Cease activity Cease activity The risk grid can be further developed to provide data for risk-factor calculations. Much risk evaluation is subjective. the same poker player might react differently to the same hand at different points in the game.7. the individual likelihood of variations within that overall limit is shown. the overall area contained within risk C is the same as before. variations might take place within the area C2.

the averse risk taker becomes more and more inclined to risk making a move. This approach is adopted because it allows learning from one disposal to be passed on in the form of safe procedures and it gives a traceable clue to what went wrong if the bomb inadvertently explodes. The bomb-disposal expert therefore exhibits relatively little creativity. Once the attitude has been considered in some way. The risk-averse decision maker will only increase effort once the impact is very high. while a risk-seeker will increase effort at a much earlier stage. Seeker Neutral Effort Averse Impact Figure 3. This concept is shown diagrammatically in Figure 3.15. For instance. There are standard operational manuals and guidelines for aerial combat.12 and 3.15 the word ‘impact’ refers to the maximum reward or opportunity available to the risk taker. These characteristics can vary according to the company under consideration. the attitude and personality of the risk taker. the risk has to be plotted or put in relation to other risks and to the various determining factors that can affect the outcome. whereas the risk seeker is happy to increase his or her level of effort at a much earlier stage. Different types of people and even professions characteristically exhibit different standard risk attitude characteristics. the chances are that he or she will do everything strictly by the ‘book’ as there are standard approaches and procedures to be adopted.16. In contrast. fighter pilot takes high combat risks but also has to be very creative. and some examples are shown Figure 3. As this potential reward increases.Module 3 / Project Risk Management leans towards encouraging risk. The use of the word ‘impact’ in this context should not be confused with the use of the same word in other areas of this text. but the actual manoeuvres and turns in attack and defence have to be original as they depend on the characteristics of each Project Management Edinburgh Business School 3/47 . However.15 Attitude of risk taker In Figure 3.13. where ‘impact’ refers to the potential damage which a particular risk could cause should it occur. such as in Figures 3. bomb-disposal expert faces a great deal of risk when defusing a bomb. and so on.

1 Risk response basically centres on risk distribution. All teams tend to make more risky decisions the longer they are together as a team. individual versus team interests. the detail of the analysis and the attitude of the risk taker. If a ship is chartered to deliver a given cargo on a certain date.6 Risk Response Response Considerations Once the risk has been identified and analysed.Module 3 / Project Risk Management Artist Researcher University lecturer Creativity Police person Lawyer Nurse Machine operator Emergency surgeon Fighter pilot Venture capitalist Scaffolder Accountant Hight street banker Risk Bomb disposal Figure 3. as well as accepting high risk. The probability of bad weather will presumably be higher in winter than summer.6. Risk attitude in relation to a project varies in relation to the characteristics of the project team. including: • • • • • • • company policy.16 Creativity and risk inherent in some job types combat situation. Individuals tend to take less risky decisions than teams. 3. there is still the question of response. multidisciplinary teams tend to make more risky decisions than unidisciplinary teams. 3. One may assist or obstruct the other depending on configuration. There is also a range of other variables that can affect risk response. such as bad weather. This is always a possibility and there is nothing that anybody can do about it. alternatives (cost-effective and non-cost-effective). although even 3/48 Edinburgh Business School Project Management . involuntary risk (forced on the risk taker). Some external risks. voluntary risk (risk that the risk taker is prepared to accept). lack of relevant information on cause and effect. length of time of exposure to the risk. The response depends on the nature of the risk.6. The fighter pilot therefore has to be inventive. are always there. In addition. it may be delayed by bad weather.6.

This may or may not be feasible. There will always be the risk of weather-induced delay. where one party (such as an employer) can have an implied liability for the actions of others (such as employees). There have been numerous examples of this over the years. such as a cyclone. In our example of a ship. risk may be split. the ship owner will undertake to make the delivery on time. The distribution of risk will depend on a number of non-contractual considerations. The question of risk allocation generally revolves around a test of reasonableness. Where control is not possible. and (if shared) the extent to which it is shared between the parties to the contract. such as in bad weather conditions. as this weather is part and parcel of working at sea. the contract will therefore usually determine the risk response. An employer is probably liable for the negligent acts of an employee because the employer is more likely to be able to settle a large damages claim. These include: • Is the outcome of the project worth the risk? The best way of avoiding the risk involved in the project is to avoid the project itself. Some projects are cancelled or stopped early in the project life cycle because the risks associated with the project are too large in relation to the potential gains. which was partially developed at great cost and then cancelled as the development risks escalated. The contract is the tool by which the risk is allocated and shared out according to its terms and conditions. What incentive does each party have? It is generally considered prudent to maintain at least some interest in the risk for both parties. and in the end this risk has to be accepted by the parties to the contract. This gives rise to the concept of vicarious liability. may be the client’s liability because it could not have been reasonably foreseen. A contract between a supplier and a client will therefore put the risk of late delivery solely on the supplier. Delays caused by reasonably foreseeable weather would be his or her liability.Module 3 / Project Risk Management this might not be the case with some bad weather such as hurricanes. A good UK example is the Advanced Passenger Train. the contract will determine whose risk this is. then specific terms and conditions to define risky events and risk liability may be inserted in the document. Who has the greatest risk liability? Over and above the control consideration. If a probability of bad weather is identified. If the project does not use a standard form of contract. most EU legal systems put the onus of risk on the party who would be least affected by it occurring. exceptionally adverse weather. Who has the greatest risk control? Most European legal systems require that the majority of the risk is assigned to whichever party has most control over it. or more usually set on the client. However. An insurance company will probably insist on an Edinburgh Business School • • • Project Management 3/49 . as the client should be aware of this risk when ordering the project.

This keeps the premium down and discourages minor claims. if we have this as a choice.6.2 Response Options Risk responses include: • • • • • risk retention. this could put the other party in a vulnerable position. the driver could lose control of the vehicle. Obvious examples would be car insurance claims. This is most suited to risks that are characterised by small and repetitive losses. The flat tyre is going to disintegrate at some point. Uninformed risk retention is therefore a high-risk strategy in that the consequences can be significant. In general. When it does. This probability can only be completely eliminated by improving quality standards to such an extent that the manufacturing cost becomes too high for the goods to remain competitive. The manufacturer accepts that (say) a 5 per cent defect rate is inevitable. The level of retention is dictated by financial circumstances and by the likelihood of loss. Another example would be third-party insurance rather than comprehensive insurance. in which case it has to be retained. Most projects have to carry some risk. risk avoidance. risk reduction. The example would be a householder deciding not to insure the contents of his or her house. Some people will be happy to bear £200 in return for a smaller premium. An example of this might be driving on a flat tyre to try and reach the garage because there is no spare tyre in the boot. Ignoring the risk is obviously itself a high-risk strategy. If one party has no interest in the risk at all. Most people are willing to accept a £50 excess on car insurance. Each of these is described further below. It is rarely prudent to retain a high-probability high-impact risk unless there is no choice. risk transfer. Most forms of contract require a more or less collaborative approach to the equitable sharing of risks.6.Module 3 / Project Risk Management excess (where the policyholder has to pay the first so many pounds of any claim) so that the insured retains some interest in not making unnecessary claims. there will generally be some risk of a defective product being produced. The driver therefore hopes that the flat will not shred before he or she reaches the garage. seeking additional information about the risk. Informed risk retention is an alternative approach. It may be uneconomical to transfer some risk. Everything is OK provided nothing goes wrong. risk retention normally applies to relatively low-probability lowimpact risks. and covers Edinburgh Business School Project Management 3/50 . the obvious ones to carry are the low-probability lowimpact ones. • Risk retention. The solution to this problem is again retention and risk transfer. 3. In any manufacturing process.

• Risk transfer. there have to be some data available and it has to be possible to evaluate the risk of the event occurring in some way. In order to be able to make a calculation. risk may be reduced by training and development. – The insurability of the risk. Syndicate members had to be able to demonstrate that they had a reserve of cash to meet claims from insured parties. It is sometimes possible to assemble a risk-reduction matrix. Most purchasers will accept a 5 per cent chance of buying a defective product if it is cheap enough and they can get it replaced or fixed free of charge if it turns out to be a dud. Risk may be reduced by a number of means. Liability could be transferred through contractual clauses or through negotiation. or by redefining the aims and objectives of the project. Insurance is obviously an important consideration in risk retention. In both cases. it is still possible to reduce individual risk by designing vehicle bodywork to withstand impact more effectively. such as the risk of a piece of an aircraft falling off and damaging a stated property. • Risk reduction. or extremely low. where groups or syndicates of Lloyd’s ‘names’ worked together to provide insurance cover for shipping. In order for a premium to be calculated. it may not be feasible to calculate the probability of the risk event occurring. the syndicate was liable to the owners for the cost of the ship and its cargo.Module 3 / Project Risk Management the likely 5 per cent defect range with suitable warranties and guarantees. In addition. Edinburgh Business School Project Management 3/51 . More modern automobiles are designed to incorporate crumple zones. Not all risks can be insured. It may be possible to engineer risk out of the equation. This lists the common risks on a project and suggests how both probability and impact can be reduced. This was the philosophy of some automobile makers through the 1970s and 1980s. Risk transfer involves transferring the risk to others. If the insured ship was subsequently lost. If it is not possible to reduce the incidence of car crashes. such as insuring an aircraft that is flying into a war zone. Risks may be extremely high. This philosophy is still a type of risk transfer as it seeks to increase the potential damage to the vehicle in order to reduce the potential damage to the occupants. Probably the most common way of transferring risk is through an insurance contract. An early example of this was the Lloyd’s syndicates. The relevant factors generally applicable when considering insurance are described next. there must be some basis for making a calculation. This allows the manufacturer to retain the risk of a defective product by allowing the purchaser to transfer the risk back to the manufacturer. There are numerous ways in which this can be done. The syndicates than agreed on a level of cover and a premium.

A total of 11 ships were sunk. For example. Risks can also be transferred through damages clauses within contracts. a client normally has to maintain fire insurance. insofar as is possible. for instance. For an automobile. rather than to insure one’s assets. A client may insist on a 10 per cent retention on all works completed by a contractor. In some legal systems. they are also available for tortious (or equivalent common law) liability (e. Risk transfer through insurance transfers the risk to the insurance company in return for a premium. Insurance premiums are generally a small proportion of the insured loss. and there may be no net benefit. Damages sometimes may be punitive under the Unfair Contract Terms Act 1977. In most legal systems. In an office building. the premium can be less than 0. it may be cheaper to retain the risk and act accordingly.g. In some cases it can be cheaper to accept the loss and cover it. An example would be military supplies in wartime. the retention sum is used to make good. transferring one risk may give rise to another risk. a British Fleet sailed to the Falkland Islands in order to repel the Argentine Army that had occupied the islands. negligence).8. An example of this is retention. but a contractor is required to provide evidence of a suitable all-risks policy that covers for items such as poor workmanship (retention) and latent defects (warranties) – these are not insurable and are therefore covered by contract terms and conditions. – The likely cost of the loss. In addition. This amount is retained by the client to protect against contractor default. In 1982. The maximum loss includes the totality of what is likely to be lost as a result of the risk occurring. Most standard forms of contract transfer risk to some extent by both insurance clauses and by transfer terms and conditions. Not all risks can be transferred and there may be some risks where it is not economical to do so. They tend to be liquidated and ascertained (based on actual loss). In such cases. Damages generally cover the actual losses suffered by parties to the contract. If the contractor does default. and are summarised in Table 3. damages are generally available as a remedy for breach of contract. and more were seriously damaged. – The maximum probable loss. None of these ships was insured as the cost of the premiums would have been extremely high. These measures are a way of transferring non-insurable risk from the client to third parties.5 per cent per year. 3/52 Edinburgh Business School Project Management . the default. The UK Ministry of Defence has a general rule that it does not attempt to insure equipment that is used by the armed forces. depending on model and age. premiums are typically 5–10 per cent per year. – The likely cost of paying for the loss if uninsured. On lower risk items such as buildings insurance.Module 3 / Project Risk Management – The cost of the insurance premium. It can sometimes be difficult to evaluate everything that will be lost in such a case. this would include everything that is lost if the building burns down. The likely cost of the loss includes the full cost of reinstatement to original condition.

Bias may be another issue and may need to be counteracted by seeking further information. The risk identification and analysis systems may be incorrect or items may have been missed. Another example would be exemption clauses. It is very important that all assumptions and evaluation processes are recorded and then measured in some way in order to see whether or not they are working correctly. Risk avoidance is essentially the philosophy of avoiding risk by negotiations or deals to get rid of it completely. Risk may sometimes be avoided or reduced by seeking additional decisionrelevant information. it might also include rescission (or determination) following a fundamental breach of contract. the probability and impact of identified risks may change over time. the accuracy of the chosen forecasting or modelling technique may need to be improved in order to ensure that the risk can be properly addressed. however. and the level of perceived risk may be reduced if more information is made available. Risk avoidance is synonymous with refusal to accept risks. This storage and classification of learned information is crucial to any good risk management system.g. Seeking further information.6. It is important that identified risks are constantly monitored and reviewed. so that their evolving status may be Project Management Edinburgh Business School 3/53 . civil commotion) All-risks policy Third-party insurance (damage to persons) Third-party insurance (damage to property) Undermining (where appropriate) Escape (where appropriate) • • Damages Determination Contractor • • • • • • Retention Damages Determination Performance bond Warranty Collateral warranty • Risk avoidance. This information may also be used in other projects.7 Risk Control. Some uncertainty is caused by a lack of relevant information.Module 3 / Project Risk Management Table 3. • 3. it might be possible to redefine the scope and boundaries of the project so as to omit the area that is most risky. It is normally associated with pre-contract negotiations. In addition. Risk avoidance means removing the risk in all forms from the project. Policy and Reporting Risk control is the process of using the information that has been learned on a project to assist in the later development of the project.8 Client Common insurance and transfer clauses Insurance clauses Transfer clauses • • • • • • • • Fire insurance Flood insurance Perils (e. Alternatively. In addition.

• • • • Any risk policy should initially develop individual targets for individual sections within the organisation. the previous decision to do nothing may no longer be appropriate. Formalised reporting channels The policy sets out the reporting frequency. it is sometimes adapted and formulated into an overall risk policy. he or she has decided not to replace the tyre. Acceptable deviations and tolerances should be stated in the form of a direct variance envelope. Risk reports should be produced to a timetable and be controlled by an overall strategy. Risk tolerances Risk management is not an exact science and it is not possible to meet and achieve all targets with total accuracy. as appropriate) that apply to authorisation at each reporting level. as follows: • Overall aims and objectives Based on the overall objectives of the risk management system. The driver knows that there is a problem but. if the rate of air escape increases. Provided that the driver keeps an eye on the tyre and keeps on refilling it with air. the risk policy establishes a number of elements. Once the overall risk strategy has been developed and assessed. such as identified and quantified risk. This establishes the limits of acceptable practice and sets an alarm ringing if overall performance moves outside these limits. Accountability for individual managers This is normally established through some kind of task responsibility matrix (TRM) in which individual objectives and obligations are laid out in relation to the policy as a whole. This may be incorporated into the organisation’s best-practice documentation. membership and individual responsibilities. or they could relate to specific risks isolated in the identification and sourcing processes. Once this has been completed. there must be regular reporting on red-quadrant ‘lion’ risks (see section 3. it may be allright for some time. circulations. Over and above the identification of risk holders and risk strategies for ‘red’ quadrant risks.Module 3 / Project Risk Management established. Experience with risk and risk management is often documented into a risk handbook. Authorisation The policy sets out the authorisation procedure. where it may not be immediately obvious who can authorise what. However. The level and frequency of reporting will depend on the significance of the risk. This is important in large complex projects. This applies especially in cases where risks have been identified but where no action has been taken. In addition. The analogy would be a slow puncture in an automobile tyre. This is simply a statement of the policy of the organisation in terms of risk and risk management. The aims and objectives could relate to the treatment or handling of specific risks as identified on the current and target risk maps. with constant review of the programme for handling these risks.3). There will generally be some kind of authorisation filter in place that defines the financial limits (or other measure. the policy is developed and worked up as a strategic document. for whatever reason. the policy should clearly show what the required outcomes for each section or control unit are. 3/54 Edinburgh Business School Project Management .

A supplier might find himself or herself unable to deliver a consignment of goods because of a late delivery from a third party. • • • • • • • • • inadequate and defective contract documentation. The purpose of the contract is to define the rights. interface management system problems.7. Because projects include an element of disagreement and conflict. dues. Contracts are particularly appropriate in defining and allocating risk. incapacity. Different contract types cover different aspects of risk. vague or unclear contractual terms. insolvency. inappropriate contractual arrangements. it can be apportioned to suppliers and subcontractors as part of a subcontract or supply contract (with damages resulting in the event of non-compliance). Where the risk is high.1 Risk. As such. incorrect estimating and pricing. ambiguous specification. inadvertence or error.Module 3 / Project Risk Management 3. breakdown in personal communications. contracts are a way of transferring the risk implied by these events. Reasons for disagreement and conflict include the examples listed below. a contract sets out the liabilities and obligations of each party and establishes the recourse that is available to each party in the event of a default. Risk can be transferred to an insurance company in return for a premium. Contracts and Procurement Introduction A contract is a classic way of managing risk. or because of interference from outside events or sources. It is simply a formal agreement between two parties. it provides guidance for each party in the event of a dispute or conflict. A contract allows a party to transfer liability for a risk. unreasonable risk as allocated by the contract. A contract also allows risk to be controlled. In addition. The main risk consideration in terms of contracts and contract law is commensurate risk. the tender price will be higher to reflect this risk absorption. Project Management Edinburgh Business School 3/55 . obligations and liabilities of each party. The characteristic of non-performance or non-compliance is conflict. It is a tool for risk transfer and mitigation. Most of all. it records the rights and obligations of each party to the contract. Commensurate risk is an obligation when accepting a contract. Commensurate risk is the risk of being unable to fulfil the obligation or duty because of one’s own inadequacy. The general and specific conditions of contract are the primary determinants in evaluating the risk that is borne by the tenderer and therefore in determining the likely tender price. A contract is to some extent a protection against disagreement and conflict.7 3.

the contract defines only the ground rules. This could include items such as access to premises while works are carried out and commissioned. An example would be the implied obligation to declare all previous claims when entering into an insurance contract. The execution of the contract depends on goodwill. These are the documents that are generally issued with the form of tender.7. The client may be required to approve each report before the project team can move on to the next phase of the process. Information and facilities to be provided by the client details the additional obligations of the client under the contract. Project approvals relate to the various levels of consents and approvals that are required at various stages throughout the project life cycle. Such systems go on right through the contract. It is common practice for reporting stages to be subject to approval. materials delivered. with Edinburgh Business School Project Management • • • • 3/56 . where the client and contractor agree on the extent and value of the works that have been completed and add reasonable allowance for agreed variations. The bid or tender depends entirely upon the wording of the associated contract conditions. or utmost good faith. The bid might include a guaranteed maximum unit price for the component and possibly some form of guarantee on delivery dates and frequency etc. In some cases approval may be required from external sources such as local authority or regulator approvals. arbitration or litigation. A company might bid to supply components to a car manufacturer for the next five years. The definition of contract terms and scope summarises the terms and conditions used and describes the range and extent of the works in sufficient detail to identify the limits of the project. Payment systems are usually included within the standard or specific conditions of contract. Contracts are deemed to be executed in good faith where there can be no intention to deceive or mislead the other party. This may seem obvious but it has important implications if any part of the contract subsequently becomes the subject of a claim.Module 3 / Project Risk Management Other possible reasons could include labour disputes or changes in practice or statute. Some contracts. They provide services based on the specifications or requirements of individual tenders that are submitted by client bodies. These are generally based around a monthly valuation. 3. They usually seek to provide these services on the basis of some form of competitive bid or tender for services. This includes an obligation to disclose all information that is relevant to the contract. such as insurance contracts. This sum is then paid to the contractor as an interim payment.2 Basic Contract Theory Companies generally have to compete for work. intent and the relationship between the parties. or the death/insolvency of one or both of the contracting parties. legally committed funds and allocation of provisional and overhead percentages. With any contractual arrangements. depend on uberrimae fidei. Typical contract documents include items as follows: • The signature block and project title identify the project and the parties to the contract.

provided that it is written down as first recourse within the contract and provided both parties agree to it. Clients often want to add specific terms and conditions to suit their own circumstances. sometimes chaired by a facilitator. Specific conditions are drawn up specifically for that particular application. together with procedures for valuing variations and payment systems. etc. Bonds and warranties specify what provision is required and how this is to be executed. General conditions are standard forms of contract. They are sector-generic and are designed to cover the primary duties and obligations under the contract in most applications. This is sometimes referred to as the final account. which involve prescribed procedures to be adopted in the event of a dispute occurring. in an attempt to resolve the dispute without the need for it to be taken further. The specification describes the technical performance of the product or service being provided. This is important as it prevents the wronged party from going directly to court and involving the dispute within a costly and long-term hearing process. Contracts involving public finance often require detailed bond cover. Typical examples would include payment methods. The bid or tender depends on risk: where the risk is low. the tender price can be accurate Dispute resolution is the process for dealing with disputes and arguments. The form of tender constitutes the legal offer to carry out the works and appendices contains a summary of any additional contractual information such as fees and contingencies. Provision for change and variations is usually included within the general and specific conditions. The bond covers contractor performance up to practical completion and hand-over. treatment of variations. contracts are calling for the inclusion of Alternative Dispute Resolution (ADR) systems. which is usually required up to a stated percentage of the contract sum – perhaps 10 per cent. Guarantees and warranties may be required over and above this. Typical examples would include restrictions on noise. working times and access. The procedures are designed to allow reasoned and informed discussion. On a large and complex project.Module 3 / Project Risk Management • • • • • • • • • a balancing payment at the end of the contract when the works are finally measured and agreed. The tender usually states the project title and parties involved and acts as an agreement to carry out the works as described for the stated sum. it might be treated separately and be included as a separate document. under which country’s laws the contract is subject to. The warranty guarantee covers the quality and reliability of the finished product after hand-over and during Edinburgh Business School Project Management 3/57 . Working drawings show the full design information for the product. Most contracts call for a first recourse to arbitration. followed by recourse to litigation if arbitration proves to be unsuccessful. Arbitration provides a quicker and cheaper alternative. Increasingly. It would contain provision for the ordering and execution of variations. Schedules describe and summarise the various component and assembly requirements.

When the client accepts that bid. something of value must be exchanged.Module 3 / Project Risk Management use. there must be: • Offer and acceptance The offer should be distinguished from an ‘invitation to treat’. all parties must complete their liabilities and duties under the terms and conditions of the contract. This could be the full sale price. Acceptance occurs when the vendor accepts this offer. The contract can be void if one or more parties has agreed to it while knowing that they do not have the capacity to deliver. A price on a good in a shop window is an invitation to treat. This is limited by a number of considerations such as the ‘postal rules’ mentioned above. The conditions of contract may require that the warranty is secured in some way. so long as the person who made the acceptance has posted it within the Royal Mail system. a contract cannot exist where the consideration or the goods under the contract are illegal. or it can be terminated in a number of alternative ways. Alternatives to performance include the following: • Breach – where one party acts in contravention of one or more terms or conditions. or it could be an instalment or a deposit. There are a large number of established rules that apply to offer and acceptance. When a contractor completes a bid in the form of a tender. that is his or her offer. Capacity This relates to the ability of parties to perform their obligations under the contract. An example would be a manufacturer who contracts to supply 1000 units per month while his manufacturing limit is 250 units per month. acceptance has to be communicated to the offeror. An obvious example of consideration would be a deposit paid by a purchaser of a new automobile upon order. such that acceptance is made when the acceptance is posted to the offeror – the acceptance. In order for a contract to exist. With this and some other exceptions. For performance. The offer is made when the prospective vendor goes into the shop and offers to buy the good for the stated price. For example. For the contract to be valid. The documents may require a collateral warranty that is transferable in the event of the finished project being transferred or sold to a new owner. A contract for the supply of banned narcotics would thus be void from the outset. There can be no contract if the offeror is unaware that the acceptance has been made. One example in the UK is the ‘postal rules’. depending on the legal system under consideration. • • • • A contract can be successfully performed. Communication Generally. perhaps by being insurance-backed. it is generally necessary that acceptance is communicated to the offeror before a contract can exist. It is the exchange of something of value (usually money). does not have to reach the offeror. A automobile dealer might contract to deliver an automobile Edinburgh Business School Project Management 3/58 . Legal relations The contract itself must be legal and there must be an intention to create legal relations. Consideration Consideration may or may not be appropriate. that is the contractual acceptance. if mailed.

Obvious examples would include contradictory contract terms. The supplier would have to refund the full cost of the automobile or supply another one of equal value. Determination means that both parties can cease their works under the contract. A contract for the delivery of handguns in the UK would be void from the outset. Rescission – where there has been an error or misunderstanding in the preparation of the original contract.3 Procurement Procurement is the process by which goods and services are acquired. even if both parties wish to do so. Any contract could not then be performed legally. Termination/determination – most standard forms of contract allow the contract to be determined under certain circumstances. interacting and agreeing on a contract within a given market sector. and the party that has determined the contract has a right to seek reimbursement against the party who has been determined. or determination by the client because the contractor has failed to make reasonable progress with the works. The court can amend this by rescinding one or more terms. Most standard forms allow determination and list clear circumstances under which each party can determine and the rights and obligations of each party in the event of this taking place. It is the process of the two (or more) different contractual parties.Module 3 / Project Risk Management • • • • • and instead delivers a motorcycle. Void – A contract can be void where. 3.7. This is breach of contract as the supplier has failed to deliver the goods as detailed in the contract of sale. neither should he or she profit from the damages. Obvious examples would be determination by the contractor because the client has not paid the contractor within the stipulated time period. who have different aims and objectives. Procurement is a very important function. An example would be a contract for the supply of goods that have ceased to be available on the market. The courts can elect to rescind one or more contract terms if they are not acceptable. and a motorcycle is not the same as an automobile in any reasonable consideration or sense. Frustration – where a contract cannot be performed. where one clause says one thing and another clause contradicts it. Rectification – where a contract term has been wrongly worded or phrased. a contract for the delivery of depleted uranium shells to a country just before an international standard is agreed banning the use of these weapons. the contract goods are illegal. The purchaser should not lose out. The usual remedy for breach is damages. Project Management Edinburgh Business School 3/59 . This is important because good procurement leads to good suppliers and this in turn leads to increased performance and improved profitability. It is the process by which the organisation can attract and contract good quality services. or where there have been changes in regulations or statute to restrict the sale or distribution of an item that was previously freely available – for instance. and therefore becomes frustrated. for example. The court can rectify the term to make the meaning clear and unambiguous. so that there can be only one interpretation.

while each individual project manager might have authority for individual choice for procurement of security services (project procurement).17. This section typically comprises lawyers and other procurement specialists who act as an interface between the organisation and the outside world. 3/60 Edinburgh Business School Project Management . or programme of projects. Most large organisations have a ‘Legal Services’ or similar department which is responsible for procurement and the preparation and execution of contracts.17 Internal legal services section as internal/external interface Procurement can operate at a strategic level or at a project level. Project procurement is restricted to the procurement options relevant to the specific project. procurement and contracts preparation and processing is centralised. The organisation Functional unit Functional Manager Project team member Functional unit Functional Manager Project Manager Project team member Project Interface Manager Legal Services Section External main contractor Nominated subcontractors External suppliers Domestic subcontractors Other external bodies Figure 3. For instance. the company as a whole might have one single supplier for stationery (strategic procurement). as shown in Figure 3. Strategic procurement is involved with the corporate strategy of the organisation.Module 3 / Project Risk Management In most organisations.

but generally there will be a number of common phases. and manufacturing capability. The phase will involve a detailed scrutiny of the project and an analysis of the distribution of authority within the system. where the work is highly specialised or where there are only one or two suppliers or contractors capable of complying with the requirements of the contract. The former includes company policy and strategy. These vary from country to country and from company to company. It is necessary to produce some kind of listing of possible sources of supply. Procurement generally includes a number of individual life-cycle phases. the objectives of the procurement process are established and reconciled with the objectives of the project (project procurement) and with the overall objectives of the company (strategic procurement). This may be done by some kind of standardised selection process. confirmation of plant. where suitable sources are identified from past experience and reliable ones are listed. references. inflation. interest rates. backed up by a testing or evaluation procedure that often involves the submission of accounts. The external (macro) environment includes all external variables that can affect procurement options. Alternatively. Negotiations are used frequently in extensions to existing contracts. There is an internal (micro) environment and an external (macro) environment. it might be better to form a term contract to run for (say) five years. each described next: • Objective phase. Exposure phase. it might be considered acceptable to enter into a negotiated contract in order to fix a price. in the European Union. A supplier might agree to extend the duration of the contract provided that unit rates are increased by (say) 1 per cent per year for the Edinburgh Business School • • Project Management 3/61 . Typical considerations would be on choice of contract term. In other cases. it is a legal requirement that clients must advertise projects that involve public funds above a certain threshold figure (about ¤1 million in 2001). Expressions of interest may be invited. It sometimes includes an analysis of each expression of interest.Module 3 / Project Risk Management Procurement options are also affected by the environment in which decisions are made. The exposure phase may be individual to the company or may in some cases be set by statute. and with new applicants. In some cases it is appropriate to form a one-off contract for the supply of goods and services. This would be appropriate for long-term supply contracts or maintenance. It might be decided that the best alternative is for a straightforward competitive tender involving sealed bids that are to be opened by someone in authority at a particular time. The alternatives phase also involves a decision on the type of contract to be adopted. on-site inspections may be carried out in order to verify claims. including general economic activity. Alternatives phase. During the objective phase. the project and the procurement options and availability might be advertised. statute etc. For larger procurement considerations. The alternatives phase usually involves a scrutiny of the various alternative sources available. For example. Alternatively.

British Rail used to design and build all trains itself. the onus of risk lies with the client in a design specification. they opted for performance specifications in order to transfer risk to the manufacturer. They involve a bank or insurance company providing surety. Award phase. Generally. in that the advertising and tendering phases can be omitted and the cost of the supply for the next five years becomes fixed. Different standard forms require different actions in the event of any changes or errors being detected. This reduces risk to both parties and saves the client money. • Documentation phase. the bidder has to be notified and be given the opportunity of correcting the error or amendment. Examples would include the scrutiny of insurance cover (such as third-party or contractors’ all-risk policies) and the placing of insurance bonds and/or guarantees and warranties. Once applicants have been scrutinised. in other cases. Tendering phase. The works are generally described using some form of specification – either a design specification where the designer produces full working drawings of what is required. The various tenders are then returned and a tender report is prepared. usually by a legal expert and by a cost expert. The client (or its consultants) prepares contract documents which describe the works in some way. It is essential to check that no contract terms or conditions have been amended and that arithmetical or calculation errors have been eliminated. The award phase can involve a number of additional sub-phases. Edinburgh Business School Project Management • • 3/62 . or as much as is possible. In doing so. the bidder has to be informed but has to stand by the changes or amendments or else withdraw. This involves the client in preparing a formal document that usually describes the liabilities and obligations of each party and sets out the terms and conditions of the tender contract. or a performance specification where the client specifies the end performance characteristics that are required – and the contractor then designs the product and implements it. After railways privatisation during the 1990s. The various bids are scrutinised. The result was the Turbostar class. A good example of this is the 2001 introduction of ‘Turbostar’ trains in Scotland. Bonds are again often required on projects that use public finance. individual train operating companies no longer owned the means of production and had to invite tenders from private locomotive manufacturers. whereas much of this liability is transferred to the contractor in the case of a performance specification. is removed.Module 3 / Project Risk Management next five years. which can take anything from days to weeks for the tenderer to set up. and to such a level of detail that all ambiguity. There is an important distinction in terms of risk here. The various short-listed bidders complete these documents and tender their offer. This is important because it allows all bidders to bid on the same basis. The idea is to produce true parity of tender. those selected to proceed may be invited to tender or bid as the preferred source. In some cases.

flood etc. Project eventual cost.Module 3 / Project Risk Management • Contract administration phase. Cost limits or targets may be stated as part of the overall contract documents. Most production processes include some risk to adjacent properties or people. Uncontrollable risks include factors that are outside the immediate control of the project. These risks are generally outside the control of the parties to the contract. There are very few exceptions. There is often a general requirement for insurance against damage to third parties.7. Third-party insurance. they can take many forms. These risks are internal to the project and are controllable by good management and good quality-control procedures.7. In all cases there will be some fundamental contractual risks. The liability for defects can often depend on how the choice or selection of materials has been specified within the contract documents. and most projects will require this type of insurance cover. Controllable risks include such factors as human error and decision making. Most standard forms of contract incorporate specific provisions for indemnity. such as exceptionally adverse weather conditions.4 Characteristics of Contracts Controllable and Uncontrollable Risks The level of risk in any contract depends on the degree and extent of controllable and uncontrollable risks. but there is generally no guarantee that the project will cost the target sum or even fall within a target window. Fire. particularly in items such as the selection of materials. Defects can be patent (obvious) or latent (hidden). Having awarded the contract. 3. the client or its consultant professional advisors administer the contract in order to ensure that both parties comply with its terms and conditions.1 • • • • Project Management 3/63 . One example is professional indemnity insurance. These include the examples listed next: • Adequacy of design: latent and patent defects. Most manufacturing and production processes take place within an environment that is to some degree susceptible to fire or flood. where professional people such as doctors or solicitors indemnify themselves against negligent acts. The risk for cost overruns may be client. It may be possible to cover or reduce some such risks by some form of insurance.or contractor-based. Edinburgh Business School 3. All designs can contain errors.4. Safety and indemnification for accidents. Controllable risk can generally be foreseen and therefore adequate provision can be made against its occurrence. Third-party insurance covers this risk.

there are contractual situations where it is inappropriate to try to write down every single right and obligation under a contractual agreement. such as health trusts. most standard forms of contract include specific clauses to protect against late completion. These implied terms are very common in contracts for professional services. A contract for the sale of an automobile will describe the make and model and give a delivery date. When a person hires a professional.4. compensation etc. or (more likely) liquidated (i. These are clear conditions and it is easy to see whether they have been met. The same goes for large architectural practices or legal firms. However. Damages for late completion may be punitive.2 Express and Implied Terms Contracts contain both express and implied terms. If a person visits the doctor. that party is in breach of contract. Neither is there a list or schedule of what questions the doctor will ask or how the doctor will arrive at a diagnosis. that person could be disciplined by the General Medical Council (or equivalent) of that country. In a medical case. The patient has a right to expect the doctor to act professionally and to provide services of an adequate standard. There are clear implied terms.7. The difference between express and implied terms is important. however. the contractor and the client are both likely to lose money. usually carry block PII insurance to cover all the doctors that they employ. he or she does not sign a formal contract. 3. The appropriate professional body sets out the main codes of practice and practice standards for its members. As a result. Most contracts for goods and/or services comprise clear and precise terms and conditions. Implied terms are those that can be implied from the wording of the contract or from common usage. the professional has an implied duty to act in accordance with those standards. The sums involved may be beyond the limits of individuals or even small companies. If either party fails to fulfil these precise requirements.Module 3 / Project Risk Management • Completion deadlines: liquidated and ascertained damages. consultants and other professionals are required to carry professional indemnity insurance (PII). If the project is competed late. An example might be a contract for professional services. the hirer might successfully claim compensation. inconvenience. Liabilities (such as reasonable duty of care) are generally covered by implied terms. Most projects have to be competed by a specific and stated deadline. this could be a substantial amount of money covering lost earnings. If the individual doctor fails to meet those implied contractual standards. In many professions. PII claims are becoming more frequent and PII premiums are consequently becoming very expensive. In most cases. Express terms are those that are clearly expressed within the wording of the contract. Fundamental risks are generally covered by express terms. which are written down and which clearly and accurately define the rights and obligations of each party to the contract. cash) and ascertained (based on actual losses incurred). the patient leaves it up to the doctor because the doctor is a professional ‘consultant’.e. If there is a negligent act. 3/64 Edinburgh Business School Project Management . Large employers. and so the PII cover is very important. career damage.

In general. An indemnity clause seeks to transfer specific risk for specific events onto a named party. or external factors such as code of practice changes – that require changes to the specified design or production processes and therefore to the contract itself. it must be possible to price it in some way and then reimburse or compensate the affected party.7. These are sometimes called ‘hold harmless’ clauses. In general. once the work actually starts. In addition. no matter how well the contract documents have been prepared and how advanced the design is. This is usually done through the assembly and submission Project Management Edinburgh Business School 3/65 . or if the project is delayed or changed for other reasons. The contract documents. describe the works in detail and allow accurate pricing and parity of tender. In addition. Reasonable transfer of risk through a contract also depends on the ability of the risk bearer to absorb any damages. such as extending the date for delivery.. including the working drawings. Variations allow for changes to be made to a contract without invalidating it. the greater the transferred risk the greater the cost of the project because the suppliers or contractors (or whoever else is accepting the risk) will increase prices and mark-up to allow for the increased risk. case law suggests that the courts may be unsympathetic to parties who try to contract out an unreasonable proportion of overall liabilities. However. specification etc. there will always be some information that is missing at the tender pricing stage.g.7. Risk can usually be transferred to whatever degree is considered necessary by the person who is drafting the contract. A given project might only be one of a whole series in operation at any one time. Risk is sometimes transferred through indemnity clauses. In general terms.7. There has to be some system in place for allowing agreed changes or variations to what was agreed in the contract. 3. or administrative. (e.5 Transfer of Risk in Contracts Contracts are vehicles for risk transfer.7 Claims Risk If variations occur. there will always be some unforeseen events – maybe design changes.Module 3 / Project Risk Management 3. The main requirement for a variation order or change notice is that it is fair to both parties to the contract. In order for the variation to be valid. There is therefore a need for some kind of change control and change management system. there is generally a need for strategic change management. the Unfair Contract Terms Act 1977). the person who accepts a given risk must have the ability to pay the costs that are incurred if the risk is realised. the parties to the contract might seek reimbursement from the party that has caused the delay or change. 3.6 Variation Orders and Change Notices Contract terms and conditions define the obligations of each party under the contract. Changes can be technical. Individual project priorities might change over time. Any variation has obvious time and cost implications and might have performance or quality implications. such as changing a type of wiring in a computer.

The claim will include everything that the contractor incurs costs for. If the client causes the delay so that the contractor has to take longer to finish its work.e. non-availability of labour. such as labour. Typical examples of client risk include: • • • • • • • • • • • failure to provide information within a reasonable time of the contractor requesting it. The precise classifications and listings will. If a contractor causes a delay and this leads to an extension of time for completion of the whole project. where the contractor builds up a claim. Generally it is an obligation for the client to insure against such risks. such as exceptionally adverse weather. lightning. These are items that the contractor has no control over and that therefore have to be classified as client risk. A contractor or client might be able to claim reimbursement on other grounds. Some of them would also allow the contractor to claim direct loss and expense (i. such as errors in the contract documents. plant hire. late instructions. These occurrences would allow the contractor to claim an extension of time. overheads. determination of contract by contractor. then the contractor will reasonably have to compensate the client for this delay. Other items. declaration of war and/or war damage. If this is disputed. errors or omissions in the contract documents. of course. who develop and exploit claims of this kind. not direct loss and expense. reimbursement of costs incurred as a result of the delay). delays caused by nominated subcontractors. Examples would include external uncontrollable risks such as fire and flood. they are usually claimable by the contractor. civil commotion and disruption. based on the client’s actual loss. This will usually involve indirect damages and direct loss and expense. Most standard forms of contract list items that are acceptable as the basis for a contractor claim. Examples include: • • • 3/66 fire (within limits). in which case the claim would be converted into a claim for damages. flood. Some items. Edinburgh Business School Project Management . only allow the contractor to claim an extension of time. the party might seek recourse through litigation. changes in statute.Module 3 / Project Risk Management of a direct claim. Large contractors employ teams of claims specialists. delays caused by client consultants. allow the contractor to claim both an extension of time and direct loss and expense. Compensation will usually take the form of some kind of liquidated and ascertained damages. vary from contract to contract. exceptionally adverse weather (where appropriate). then the client will reasonably have to compensate the contractor. insurance premiums etc. If they do occur.

liability for damage to third party persons and property. safeguard). Risk is also a function of the level of hazard represented by an event and the degree of safeguard that is put in place to counter it. hazard. The contractor is generally also required to carry some insurance in relation to events or occurrences that could affect the project. An organisation’s sensitivity to risk is a function of three elements. These are: – the degree of exposure (or vulnerability) to particular risk impacts. Edinburgh Business School • • • • Project Management 3/67 . Risk = f (event. Examples include: • • • employer’s liability for employees. Risk is a function of the probability of an event occurring and the consequences of the event if it does happen.Module 3 / Project Risk Management • • impact of aerial devices or objects dropped therefrom. consequences). Learning Summary The Concept of Risk • • • Risk is all around us and plays a part in virtually everything that we do. Risk is a measure of the probability and consequence of not achieving a specific project goal. Fire insurance may sometimes not be necessary. uncertainty. All employers have to carry insurance cover against compensation claims by employees or others who might be injured as a result of works. An example might be where a contractor is carrying out works that involve welding and that are carried out inside the client’s premises. including damages to both persons and property. escape of potentially harmful or hazardous materials Large contractors generally cover these risks with some kind of all-risks policy. Risk = f (event. The net impact of individual and collective risks can be quite different. Risk management originated in the US and the UK during the design of the first nuclear power stations. depending on the type of work involved and whether or not the contractor’s actions affect the probability of a fire occurring. Escape could be appropriate where any potentially harmful substances are used. It therefore depends both on the likelihood (probability) of an event occurring and on the consequences (impact) of that event should it occur. Risk management has to consider both individual risks and also the overall collective effect of other risks. and it is therefore the responsibility of the client to insure against them if they are likely to affect the progress and well-being of the client’s project. Undermining risk might be appropriate where large excavations or tunnelling is involved in built-up areas. These are events that cannot reasonably be foreseen by either party. ionising radiation.

Risk is therefore both a good thing and a bad thing. Perception of risk varies from person to person and in relation to the potential effects of the risk event. Risk and risk management should not be seen as purely static. companies have to take risks. The profile of risk management and the risks defined by organisations in decision making are also changing. Risk management is a key element of the management of investment and the generation of return. It is the driving force behind innovation and enterprise. all investments must be subject to some degree of uncertainty and therefore risk. In order to succeed. This ability is a basic survival tool and has been essential for human development. Risk and opportunity go hand in hand. The Human Cognitive Process • • Decision making and risk are fundamental elements of the human cognitive process. It is particularly significant in a project context. Sensitivity is therefore a measure of likelihood and impact. Risk intimidates competitors. the decision-making process is largely dependent upon perceived rewards and risks. – the firm’s ability to manage the implications of those different possible events. It prevents them from taking advantage of market opportunities that exhibit hazard above a certain level. but it is also a threat if not properly evaluated and managed. The use of risks to create value is changing. It is about looking at the complex world of business and analysing the myriad opportunities that present themselves and then making an informed decision on which are the best ones to commit to. The more research and analysis that can be put into the risks that underlie those activities the better. Very few things are certain apart from taxes and death. People make decisions in relation to perceived rewards and risk.Module 3 / Project Risk Management – • • • • • • • • the significance (or severity) of the enterprise’s exposures to the realisation of different events. They have to commit scarce and expensive resources to uncertain business activities. Most aspects of the human cognitive process make a subjective evaluation of risk. modified to some extent by the ability of the organisation to manage these variables. In such an environment. Everybody is on the lookout for a good opportunity. should they occur. Risk management is not just about identifying potential negative events and then taking precautions against them. Edinburgh Business School Project Management • • 3/68 . where the work is typically complex and does not form part of a repetitive cycle. Opportunities exist within an uncertain world and are therefore subject to uncertainty and risk. The relevant risks have to be effectively managed if opportunities are to be exploited. This is an uncertain world.

‘Prediction momentum’ allows forward projections based on current events and past experience to be made. the company should have some control over them. Unpredictable risks are the ‘unknown unknowns’ such as the collapse of a major bank. Most researchers would agree that the analysis and synthesis of a problem is a four-stage process. Static risk considers losses only. Typically. and lack of bias about future events. and then compares that information to previously stored information in order to make an assessment of what the new information represents. Intuition can be both individual and organisational. at least in theory. Internal risks originate from within the organisation.Module 3 / Project Risk Management • • • • • • • • • Pattern recognition is where the brain takes incoming information and stores it temporarily at a superficial level. • • • • Project Management Edinburgh Business School 3/69 . or potential gains and losses. Companies store and use collective experience in much the same way as individuals do. Risk Handling • • Risk control is particularly important in monitoring the evolution of risks. cost of production. such as changes in interest rates during times of fluctuations in the economy. formulation. It looks at the potential losses that could occur and seeks to implement safeguards and protection in order to minimise the extent of loss. The relationship between possible actions and acceptable outcomes determines what actions are to be considered as part of the decision-making process. These are unforeseeable. evaluation and appraisal. the organisation has little or no control over external risk. Possible actions are subject to the constraints of acceptable outcomes. Any forecasting technique is only as accurate as the data that are used in developing it and operating it. Risks change in terms of probability and impact over time. Predictable risks are ‘known unknown’ risks. These stages are framing. It is concerned with both positive and negative values. Types of Risk • • Market risk is dynamic. External risk originates and operates outside the organisation. The primary determinants of prediction model development and application are time scale. Bounded rationality is based on the philosophy that a being will generally opt for rational behaviour within constraints. and satisfactory outcomes are not necessarily optimal outcomes. it is imperative that any such evolutions are monitored and controlled in modern business.

Wald. Decision making under conditions of certainty implies that the decision maker knows with 100 per cent accuracy what the outcome will be. These are Hurwicz. Edinburgh Business School Project Management • • 3/70 . Under conditions of uncertainty. He or she therefore attempts to minimise the maximum regret. and risk breeds innovation. Risk is therefore to be encouraged within an organisation. The Laplace criterion attempts to convert decision making under uncertainty into decision making under risk. Most Risk Management systems contain five distinct areas. Savage and Laplace. He or she will consider only the minimum profits (not losses). The maximum regret is the largest regret for each strategy. The Savage criterion is sometimes referred to as the ‘minimax’ criterion. there are three possible circumstances under which decisions can be made. and the largest regret is the greatest difference within a state of nature column in the pay-off matrix. Without risk there is no reward. conditions of risk and conditions of uncertainty. but it is also dangerous and therefore it has to be managed. There are no probabilities assigned to each state of nature (equal likelihood of occurrence). so that an informed assessment and proper decisions can be made to safeguard the organisation. The decision maker is concerned with how much he or she can afford to lose. In other words.Module 3 / Project Risk Management Risk Conditions and Decision Making • In general terms. The Hurwicz criterion is sometimes referred to as the ‘maximax’ criterion. The decision maker is a ‘bad loser’. losses are not considered to be an option. The difference between conditions of uncertainty and conditions of risk is that under risk there are assigned probabilities. • • • • • • • • • • The Concept of Risk Management • Risk can be a good thing. There are several uncertainty criteria that can be considered. all the necessary decision-making data and information are available to assist the decision maker in making the right decision. The decision maker is always optimistic and seeks to maximise profits by an all-or-nothing approach. A risk management system aims to identify the primary risks that an organisation is exposed to. for all states of nature. These relate to the ‘known unknowns’. The decision maker is not concerned with how much he or she can afford to lose. it is not possible to predict what state of nature will apply. There will be one dominant strategy or risk that will produce larger gains or smaller losses than any other risk. Decision making under conditions of risk implies that the level of risk can be assessed and quantified in some way. These are conditions of certainty. The Wald criterion is sometimes referred to as the ‘maximin’ criterion. The decision maker is pessimistic and seeks to minimise losses.

Objective sources use the sum total of past experience of past projects in relation to the current project. Most risk analysis approaches involve the identification of risk drivers. They are the ‘unmanaged hurricanes’. Most work on classifying risk is linked (at least in part) to so-called portfolio theory. Risk identification often makes use of brainstorming techniques. They are generally insignificant and are acceptable at their present level. – risk analysis. Edinburgh Business School Project Management 3/71 . No business can survive accepting these risks at this critical level over the long term. This source is sometimes referred to as ‘experience’. and to the analysis of the various outcomes of any decision. – risk classification. The risk drivers are all the factors that influence the impact and probability of the identified risk. Risk sources are often classified in terms of objective and subjective sources. likely and pessimistic estimates. They are strategically important and appropriate action is immediately required. it is relatively easy to expand this to more sectors. relevant to current estimates. Risk analysis is based on the identification of all feasible options and data relating to the various risks. A basic risk map has four quadrants. – risk attitude. The process of risk mapping is sometimes referred to as ‘risk profiling’ or even ‘risk footprinting’. It is basically a process for showing the relationship between risk probability and impact for a range of given risks. – risk impact. Quadrant 3 (lower yellow zone: low impact/high probability) represents risks that often related to day-to-day operations and compliance issues. However. They have to be addressed at once and immediate action has to be taken. they have then to be analysed. Risk can be primarily classified in terms of: – risk type. Quadrant 2 (upper yellow zone: high impact/low probability) represents risks that are not as crucial as those in the red zone. Subjective sources use the sum total of current knowledge based on current experience. Quadrant 4 (green zone: low impact/low probability) represents risks that are not of sufficient stature to allocate specific resources. Quadrant 1 (red zone: high impact/high probability) represents the dangerous risks. as a function of time.Module 3 / Project Risk Management • • • • • • • • • • • • • • – risk identification. – risk response. – risk extent. Estimates of current performance are made based on optimistic. Once the risks have been identified and classified. they require close attention as they include the severe effects of extraordinary events.

and the level of perceived risk may be reduced if more information is made available.Module 3 / Project Risk Management • • • • • • • • • • • The attitude of the risk taker is obviously an element in risk management. Contracts and Procurement • A contract is a classic way of managing risk. There are numerous ways in which this can be done. Much risk evaluation is subjective and therefore the perceived level or risk involved with a course of action depends on the attitude of the risk taker. In addition. Risk avoidance is synonymous with refusal to accept risks. Different types of people and even different professions characteristically exhibit different standard risk-attitude characteristics. A contract is therefore a tool for risk transfer and mitigation. This is most suited to risks that are characterised by small and repetitive losses. Some uncertainty is caused by a lack of relevant information. Risk. Risk may be reduced by a number of means. Not all risks can be transferred. In order for a contract to exist there must be: – offer and acceptance (mutual agreement). Risk transfer involves transferring the risk to others. and there may be some risks where it is not economical to do so. Risk avoidance means removing the risk in all forms from the project. Ignoring the risk is obviously itself a high-risk strategy. It records the rights and obligations of each party to the contract. – consideration – i. It is normally associated with pre-contract negotiations. Liability could be transferred through contractual clauses or through negotiation. Edinburgh Business School Project Management • • 3/72 .e. Probably the most common way of transferring risk is through an insurance contract. – risk avoidance. – risk reduction. Informed risk retention is another consideration. It is simply a formal agreement between two or more parties. A contract also allows risk to be controlled. or by redefining the aims and objectives of the project. it provides guidance for each party in the event of a dispute or conflict. In addition. It may be possible to engineer risk out of the equation. Risk may sometimes be avoided or reduced by seeking additional decisionrelevant information. Obvious risk responses include: – risk retention. Risk response basically centres on risk distribution. – seek additional information about the risk. some form of payment (depending on the legal system). risk may be reduced by training and development. – risk transfer. – capacity.

– civil commotion and disruption. Typical examples of client risk include: – failure to provide information within a reasonable time of the contractor requesting it. the parties to the contract might have recourse to seek reimbursement from the party that has caused the delay or change. – determination of contract by contractor. Alternatives to performance include the following: – breach. These are items that the contractor has no control over and therefore have to be classified as client risk. If variations occur. the party might seek recourse through litigation. – voider. – frustration. This is usually done through the assembly and submission of a direct claim. – rectification. – declaration of war and/or war damage. Most standard forms of contract list items that are acceptable as the basis for a contractor claim. or if the project is delayed or changed for other reasons.Module 3 / Project Risk Management • • • – intention to create legal relations. – changes in statute. – termination/determination. in which case the claim would be converted into a claim for damages. – delays caused by nominated subcontractors. – rescission. – delays caused by client consultants. – communication. – late instructions. – exceptionally adverse weather (where appropriate). – illegality. Project Management Edinburgh Business School 3/73 . – errors or omissions in the contract documents. If this is disputed. – non-availability of labour.

7 Bounded rationality assumes that an individual decision maker will opt for rational decisions within boundaries.12 The organisation has some control over internal risk. T or F? 3. T or F? 3. evaluation and appraisal.16 Risks originate only within the organisation itself. based on past experience.9 Prediction momentum allows forward projections and predictions to be made. T or F? 3. T or F? 3.17 All risks are to some extent predictable. T or F? 3. T or F? Risk Handling 3.13 The organisation has no control over external risk. T or F? 3. All risks are internal risks.4 Exposure is a measure of an organisation’s ability to manage risk.10 The analysis and synthesis of a problem involves framing. T or F? The Human Cognitive Process 3.2 The first level equation for risk links uncertainty with consequences of an event.14 Market risk is concerned with potential gains and losses. T or F? 3.8 The human cognitive process generally works by making subjective assessments for risk.3 The second level equation for risk links hazard with safeguard. T or F? Types of Risk 3. T or F? 3.6 Perceptions of a given risk are constant for all people. T or F? 3. T or F? 3.1 Risk is necessary for innovation and added value.5 Sensitivity is a measure of how much a particular risk impact affects the organisation. T or F? 3.11 Any risk management strategy comprises risk assessment and risk control.15 Static risk is concerned with potential gains only. T or F? 3. formulation. T or F? 3/74 Edinburgh Business School Project Management .Module 3 / Project Risk Management Review Questions True/False Questions The Concept of Risk 3. T or F? 3.

24 Wald is a pessimistic approach. T or F? 3.26 Risk management as a concept comprises a number of separate areas. T or F? 3. The decision maker seeks to minimise loss irrespective of potential profits. T or F? 3. T or F? 3. T or F? 3.35 A contract generally comprises terms and conditions.31 An insurance contract is an example of a formal risk retention.28 Risk classification is the process of identifying the origin of the risk. T or F? 3. The decision maker seeks to maximise profits irrespective of loss. T or F? 3. T or F? 3.33 An insurance contract is an example of a partial risk transfer. T or F? 3. T or F? 3. T or F? 3.36 The only way to break a contract is through breach of one or more terms and conditions. T or F? Risk.34 A contract requires formal offer and acceptance. T or F? The Concept of Risk Management 3. T or F? 3.25 Savage is a bad loser approach. The decision maker seeks to minimise the maximum regret. It can involve accepting the risk.18 Decisions can be made under conditions of certainty. T or F? 3. T or F? 3.32 A contract is a way of formally allocating risk between the parties to the contract. T or F? 3.27 Risk identification is the process of analysing a risk to evaluate its likely impact. mitigating it. risk and uncertainty.Module 3 / Project Risk Management Risk Conditions and Decision Making 3.19 Certainty applies where the outcome is known beforehand. T or F? 3. Contracts and Procurement 3.23 Hurwicz is a pessimistic approach.20 Risk applies where the outcome can be expressed in terms of a probability. T or F? Project Management Edinburgh Business School 3/75 .30 Risk response is the last stage of the risk management process.21 Uncertainty applies where the outcome cannot be predicted with any accuracy.22 Risk is essentially the same as uncertainty. transferring it or rejecting (avoiding) it.29 Risk analysis involves the qualitative or quantitative analysis of the risk.

Both. Both. The Human Cognitive Process 3.37 Risk that originates inside the organisation is known as: A B C D internal risk. market risk. 3. static risk. sector.38 Most risk management systems are concerned with the: A B C D E environment. 3. Neither. 3/76 Edinburgh Business School Project Management .40 Dynamic (market) risk is concerned with: A B C D potential gains.42 Human cognition analyses risk in terms of: A B C D subjective assessment. potential losses. 3.Module 3 / Project Risk Management Multiple Choice Questions The Concept of Risk 3. project. 3. company.39 Risk sensitivity is a function of: A B C D E exposure. ability to manage. all three. Neither. all four. objective assessment. Neither. significance.41 Insurable (static) risk is concerned with: A B C D potential gains. external risk. Both. potential losses. None of the above.

possible outcomes. 3. internal static risk. Types of Risk 3. 3.43 In human cognition.45 The risk of a fire on a project is an example of: A B C D external market risk. uncertainty. internal static risk. Project Management Edinburgh Business School 3/77 . unacceptable outcomes. external static risk. Past events and extrapolation. 3. internal market risk. internal market risk. internal market risk. external static risk. internal market risk.49 Rolling a dice and calling ‘five’ is decision making under conditions of: A B C D certainty. 3.Module 3 / Project Risk Management 3. All three.47 The risk of the insolvency of a major debtor is an example of: A B C D external market risk.48 The risk of a sudden change in customer demand is an example of: A B C D external market risk. possible actions are subject to the constraints of: A B C D acceptable outcomes. Risk Conditions and Decision Making 3. None of the above. risk.46 The risk of a change in interest rates is an example of: A B C D external market risk.44 Prediction momentum uses which of the following? A B C D Prediction modelling based on conjecture. Prediction modelling based on future projections. external static risk. Past events and interpolation. internal static risk. internal static risk. external static risk.

D None of the above.Module 3 / Project Risk Management 3.54 The A B C D most common method of risk transfer is by : negotiation. would work under which of the following criteria? A Hurwicz criteria. Risk.55 A contract is a way of: A avoiding risk. D mitigating risk. C Six phases. contract. None of the above.50 A decision maker who is concerned primarily with ensuring that at least some return is generated would work under which of the following criteria? A Hurwicz criteria. 3. D Laplace criteria. C Savage criteria. irrespective of possible losses. B Five phases. Contracts and Procurement 3. C accepting risk.56 Which of the following are the two key elements in the formation of a contract? A Intention and invitation. B transferring risk. C Savage criteria. C Offer and acceptance. C Savage criteria.52 A decision maker who is a bad loser (regret minimisation) would work under which of the following criteria? A Hurwicz criteria. D Performance and breach. D Laplace criteria. B Rescission and rectification. 3. performance guarantee. 3/78 Edinburgh Business School Project Management .51 A decision maker who is concerned primarily with maximising profits. B Wald criteria.53 Most risk management systems contain a number of distinct phases. Which of the following is the number of phases? A Four phases. 3. The Concept of Risk Management 3. 3. B Wald criteria. D Laplace criteria. B Wald criteria.

is to maintain adequate levels of security for the duration of the event. a particular police commander may be able to isolate a list of potential risks affecting the successful outcome of the police operation. • It will be appreciated that a policing requirement such as a planned major event is clearly a project. are increasingly being used by police commanders when deciding on the overall risk classification to allocate to a particular major planned event. In the case of a planned major event.Module 3 / Project Risk Management 3. the police commander can then assemble a risk map and decide on what action to take in response to the identified classifications of risk. one of which. Mini-Case Study Background Detailed risk management systems and especially risk assessment systems. Unplanned major events: including unplanned events where a significant police presence may be required such as a major terrorist attack or a major robbery or other form of crime. presumably. express terms. Having assembled the list of possible risks. international golf tournaments and major political events such as international conferences involving heads of state. In the worst case scenario. These risks may be identified either following standard identification procedures or by using an initiative based on observed events. Planned major events: including events where a significant police presence is required such as big football games. planned major events and unplanned major events can be met. A commander may be given the responsibility for providing police security services to a major meeting of heads of state.57 Standard conditions of contract contain primarily: A B C D implied terms. The major event has clear start and finish times and has clear project aims and objectives. These areas are listed below. It should also be appreciated that a given police commander has to allocate his or her resources so that the demands of everyday policing. a force chief may find that he or she has to resource a planned major event as well as provide standard levels of everyday policing. equal amounts of both. neither. The commander can also use the map together with updated current information to evaluate how the risk profile of the planned major event is changing over time. The security implications of such Project Management Edinburgh Business School 3/79 . and is then faced with a major unplanned event such as a large scale train crash or civil disorder. • • Everyday operations: including routine patrols and inspections. Police commanders tend to use detailed risk assessments in three main areas of the work they commend.

Questions: 1 Identify a representative range of risks that the commander should consider 2 Draw a risk map showing the primary risks. 3 Consider how the risk profile could change over time as a function of external events.Module 3 / Project Risk Management an event could be considerable as the conference itself could be targeted by a whole range of different groups or individuals who may want to cause any kind of unfavourable outcome from minor disturbance to large-scale loss of life. 3/80 Edinburgh Business School Project Management .

2.4.3. Project management structures and operational systems are also heavily influenced by standards. production system and internal or external status.1 4. The organisational structure that is most appropriate for a given scenario depends on a range of factors.4 4. Organisations can be structured in many different ways.4 4.3. Project management as a global profession is regulated by Project Management Edinburgh Business School 4/1 .5 Introduction Organisational Theory and Structures Introduction The Project within an Existing Organisation The Project External to the Existing Organisation Criteria for Selecting the Organisational Structure Summary Examples of Organisational Structures Introduction Example of an Internal Project Management Structure Example of an External Project Management Structure Project Management Standards Introduction The APM and the APM Body of Knowledge BS6079 PRINCE2 Summary 4/2 4/5 4/5 4/6 4/28 4/46 4/50 4/50 4/50 4/50 4/54 4/56 4/56 4/59 4/63 4/66 4/68 4/68 4/74 4/78 Learning Summary Review Questions Mini-Case Study Learning Objectives This section discusses the various organisational structures that may be appropriate for organisations that are using project management.3 4.3 4.2 4. team size.4. These factors include project size.2.2 4.Module 4 Project Management Organisational Structures and Standards Contents 4.1 4.4.3 4.4.3.2 4.5 4. and project management structures can take numerous forms and can exist within or outside existing organisational structures.4 4.1 4.1 4.2.2.2 4.2.3 4.4. there may be no one specific organisational design that is most appropriate for the demands of a given application.

It is the same concept as a work breakdown structure or WBS (see Module 5).Module 4 / Project Management Organisational Structures and Standards these standards. the way in which these standards combine to establish operational procedures. you should be familiar with the following: • • • • • • the concept of project management organisational structures. A project manager must be able to look at the organisational structure that exists at any one time and be able to see how most effectively to initiate a project structure within the existing organisational structure. By the time you have finished this module. There may be no single specific solution for any given organisation. Project management may appear in numerous different forms depending on the type of organisation that is being considered. they act as links or gateways into corresponding professional levels within other professional associations that have project management specialisations. Project management standards operate at a number of levels. More defenders might be needed in the face of a more aggressive opponent. Players who were previously attacking might be called back to midfield with midfielders pulled back into defence. the Association for Project Management Body of Knowledge and BS6079. An OBS is a type of map. from global to national to sector and even to company-specific. Project 4/2 Edinburgh Business School Project Management . and in terms of any other linkages or connections that cement the various components together. The organisational structure might change during the course of a particular game – for example. different versions or derivatives of different types of project management structure being found everywhere. The main components are usually shown as boxes. and the communication or control links or other forms of linkages that hold the structure together are shown as lines between these boxes. whereas more attackers might be appropriate where a more defensive opposition is encountered. There is no single project management structure. Alternatively. the project manager also has to be able to establish an external project management team and integrate it as fully as necessary within the existing internal structure of the organisation. An OBS shows the main components of the organisation and how they relate to each other in terms of control and communication. 4. The organisational structure of a given company or project is sometimes summarised in the format of an organisational breakdown structure (OBS).1 Introduction This module considers the various organisational forms and structures that can be adopted by an organisation in developing its project management systems. the difference between internal and external systems. the organisational links that bind these systems together. The organisational structure defines the arrangement of resources within an organisation. if the team scores a goal and subsequently wishes to defend that lead. the concept of the BS6079 Generic or Strategic Project Plan (SPP). The manager of a football team might arrange his or her players in different ways depending upon the nature of the opposing team.

Project established as an internal sub-system (internal project management) Existing organisation structure External consultant Proposed project structure Control linkage External consultant Option 3. and then adapting and modifying the two structures to produce a new project-containing structure that is a compromise between the two earlier formats. This concept is summarised in Figure 4. wholly external to the organisation. looking at the proposed or required project structure.1.1 Internal and external project management systems Projects teams can therefore be established that are: • • • Project Management wholly internal to the organisation. The most obvious initial choice is between an internal and an external structure. Edinburgh Business School 4/3 . Existing organisation structure Proposed project structure The project Existing organisation structure Control linkage Control system Proposed project structure Option 1. Internal system with external specialist support in specific areas Figure 4. The project can be established using internal or external resources and in some cases it may incorporate both. partly internal to the organisation but with external specialist support. Project retained outside existing structure (external project management) Existing organisation structure Proposed project structure Option 2.Module 4 / Project Management Organisational Structures and Standards management is therefore very much about looking at existing organisational structures.

the project teams dissolve and new project teams form. that apply. the research and teaching interests being entirely different. As discussed in Module 2. Project management practice is open to interpretation to some extent. the organisation is split up into functional units or specialisations. Each department specialises in its own functional area. A compromise between these two extremes is the matrix structure where functional groupings exist. nevertheless it is important that students of the subject are aware of the emerging global standards. An example would be a research and development organisation where a pool of specialists is needed and where these resources can be allocated – and reallocated – in response to changes in the rate of progress of the research. each faculty is split into departments. and each department is split into teaching. It then goes on to look at project management standards. These teams work individually to achieve separate goals and objectives. The other extreme would be a pure project arrangement. This form would be more appropriate to pure research and development applications. Once these have been achieved. All organisations are governed to some extent by standards. Workloads are more variable and so a flexible approach is essential. while external project management is sometimes known as executive project management.Module 4 / Project Management Organisational Structures and Standards Whether internal or external. The module considers the primary codes of practice and standards that apply to EU and global project-management practice. administrative support and so on. The two main sub-forms for projects are internal and external forms. research. Each division concentrates on a separate aspect of the organisation’s overall objectives. where there are no functional specialisations. A university is split into separate faculties. Internal project management is characteristic of larger organisations with constant high volumes of repetitive work. there are several possible sub-forms for organisational structure. military and paramilitary organisations such as the police force. A basic understanding of these is important because these standards define what project management actually is and how it develops and operates within a particular organisation and sector.1 again). There are various generic national and international standards that apply to project management practice. such as they are. Individual group leaders use individual specialists to form project teams. 4/4 Edinburgh Business School Project Management . The department of civil engineering operates separately from the department of chemistry. the establishment of the project team will also be dependent upon the structure of the organisation itself. Examples would include central and local government. Some organisations are structured according to functional divisions. These forms act as the basis for internal and external project management systems (see Figure 4. where functional divisions are unnecessary. organisational structures vary widely. but project teams are formed across the rigid functional boundaries. In such cases. Within the matrix system. External project management is characteristic of smaller more responsive project teams such as professional consultancies acting on behalf of a client. This module looks at these alternative structural forms in some detail. Internal project management is sometimes known as operational (or non-executive) project management. and educational establishments including schools and universities.

Complicated planning and control techniques are widely used in almost every aspect of project management. this clash could quickly affect the performance of the team and therefore of the Project Management Edinburgh Business School 4/5 . If not handled properly by the project manager. People are usually more difficult to organise and predict. it is people that make projects succeed or fail. they predict. 4.1 Organisational Theory and Structures Introduction The tools and techniques used in project management are becoming more and more refined and sophisticated. define the critical path. People make decisions.2 4. developments in information technology have led to a proliferation of computer programs that assist in these and other aspects of the project manager’s responsibilities. cost control. smooth out resources. budgeting. projects failed or were ‘too successful’ and it would be logical to assume that there was an urgent need for further development of the tools. Two key team members might have a personality clash that has nothing to do with the project or the team itself. It is now relatively easy to obtain and operate complex software that handles estimating.2. It is largely the people and how they relate to the project environment that determines the project’s success or failure. monitoring and controlling. A project team can contain exactly the right combination of people. So where does the unpredictability come from? The ‘joker’ in the project management pack is the people. how they are organised and managed. If project management relied solely on tools and techniques. they may simply dislike each other as individuals. and carry out any number of other complex tasks. They make the correct decisions and they make the mistakes. and individuals and teams can operate in different ways even when subjected to the same external stimuli. The student simply needs to be aware of what standards there are and what they attempt to do. plan for and control the progress. In most cases. project cash flows. People operate in a different way. and more specifically. A typical example would be personality conflicts. than schedule or cost performance. Costs can be easily classified as numbers. planning. Every project is unique and the people involved contribute more to that uniqueness than any other factor. but the team might not work as well as it should.Module 4 / Project Management Organisational Structures and Standards It should be noted that it is not necessary to develop a detailed knowledge of these standards. They perform differently under apparently similar conditions. The problem could lie in a wide range of non-quantifiable ‘people issues’. it would be a surprise if. given the quality of what is available. In parallel. Relatively low-cost software will calculate variances. with exactly the right combinations of experience and qualifications. and therefore control. Modern software can perform these tasks at the push of a button and provide today’s project managers with a level of effective support that was never dreamed of even ten years ago. cash-flow modelling. which are relatively easy to understand – numbers are impersonal and only react to physical changes in the project.

It is to some extent. The teams work individually and collectively to meet the overall objectives of the project. The decision will be a function of many elements including: 4. An example would be a working party set up within an existing organisation to carry out upgrading checks on hardware.2 The Project within an Existing Organisation Introduction The most common form of project management grouping is that of a project team set up within an existing organisational structure.2. In most cases. There are numerous ways of forming project teams within and outside existing organisational structures. introducing a new management control system to a large company. not all projects can operate within an existing functional organisational structure. The project team draws members from the various functional sections and uses them to work on the project until it is complete. It also looks at the types of project that are best suited to each structure and examines the benefits and constraints. The project therefore acts in addition to the normal functional processes of the organisation. supplementary. designing and developing a new model of automobile. It works at its allotted task or project for as long as is necessary. For most organisations undertaking projects the fundamental consideration is how the project should exist within the organisation and what the relationship between the organisation and the project will be. producing a new company magazine and newsletter. 4. then it is disbanded or absorbed back into the main organisation. Different types of organisational structure are more or less appropriate for different types of project. Yet it was not predictable and it cannot be dealt with by using any quantitative tools or techniques. the people themselves do not work randomly and without direction on the project. sometimes making use of complex IT facilities. The most common project-management form is of a project team working within an existing functional organisation. This form could be an existing functional organisational structure or some other form of structure. span of control and the other classic organisational variables. they are organised into teams. This section considers a number of different structures in which the project might exist within or outside the organisation. executing an enquiry in a government department. The working party is formed by the organisation. Examples would include: • • • • • • • upgrading integrated IT support within a large company. The people within an organisation work as part of the overall organisational structure of the system. building an extension to a house.Module 4 / Project Management Organisational Structures and Standards project. This defines the position of each individual within the system in terms of authority. Some projects would have to exist within entirely separate organisational structures. However.2. The organisational structure is therefore critical to the operation of the project.1 4/6 Edinburgh Business School Project Management . setting up a new course in a university department.2.

Each division concentrates on a specific aspect of the organisation’s overall objectives. research and development. the least powerful at the bottom.2 The Functional Structure Most projects are carried out within the traditional organisation set out along functional lines. the relative status and importance of the project.2. Each section or division makes a separate contribution.2. In a functional arrangement. and he Project Management Edinburgh Business School 4/7 . Board of directors Managing Director HR Director Recruitment Training Development Marketing Director Sales Advertising Packaging Operations Director Processing Maintenance Production Quality Financial Director Salaries Payments Invoicing Cost control IT Director Support Updates Purchasing Security Salaries Promotions Figure 4. The most powerful people are at the top. The need to specialise then leads to the concentration of particular skills in separate areas or divisions. power or status is defined by a vertical hierarchy through the OBS.2 Typical manufacturing company layout Note: some sections omitted for clarity. The top people tend to be in regular communication. the resources that are made available. As discussed briefly in Module 2. but within a few levels down from the top. It is like a department store manager looking out from his or her office at the various departments within the store. sales and marketing divisions. A manufacturing company might have production.2 shows a typical organisational structure for a mediumsized manufacturing company and some of the areas of responsibility within each functional discipline. most large organisations tend to evolve into some kind of functional structure over time. the strategic fit of the project with the overall strategic objectives of the organisation. The store manager is in regular contact with the various departmental managers. finance. and the members of a division specialise in that particular function.Module 4 / Project Management Organisational Structures and Standards • • • • the size of the project relative to the organisation. there are clear functional boundaries between the various specialisations. 4. Figure 4.

Alternatively. self-contained non-matrix projects (see sections 4.4 and 4. They are likely to be developmental in nature and would tend to be projects to improve systems.2. the armed forces. and they would tend to be internal rather than external projects for the benefit of the organisation’s effectiveness. The functional structure is very common with large organisations. where projects are undertaken entirely within the most appropriate department. projects may be established for limited periods in order to address specific demands within the organisation for a multidisciplinary task group able to work on a specific one-off and unique task. or a project to modify and renew packaging could take place within the marketing section. such as cosmetics. procedures. for instance. methods or products. as with a packaging redesign or product launch which would be the responsibility of the marketing department. The most effective way of dealing with this kind of demand is to split the department up into specialist or functional sections. Edinburgh Business School Project Management 4/8 . Although projects carried out in this environment might be strategically important to the organisation. In Figure 4. there may be no formal contact at all.5) can exist in this environment. they are highly unlikely to be the reason for its existence. at lower power levels there are fewer contacts between the individuals working in the specific departments. local government. most large private companies. It mirrors the traditional authority structures of most organisations. but it is needed some of the time.2. There is a section head with lines of authority running down through the chain of command to the individual operational units and sections. whereas a project to install a new company financial system may be supervised by the IT department but would require substantial input and support from the finance department. Some of the benefits of the functional structure are the following: • • It offers a clear and reliable reporting system where rules and responsibilities are clearly defined.2. limited projects could be executed within any of the departments or sections shown. police forces. In larger organisations. Typical examples include: • • • • • central government. soft furnishing or clothing. These are all relatively easy projects to place within this structure.Module 4 / Project Management Organisational Structures and Standards or she can see the individuals who are working within each department. which can then concentrate on one or more aspects of the manufacturing or production system. However.2. The functional structure is typical of large organisations that have continuous rolling programmes of similar repetitive or semi-repetitive work. A project to install a cost control system could be planned and executed within the maintenance department of the production system. In most organisations. this approach is not needed all of the time.2. A project to employ more mature people or carry out a training needs analysis would be done by the human resources department. At the lowest levels.

Having large numbers of specialists working in defined areas means that there will be a large constant payroll and fixed overheads. allows production to take place much more quickly and efficiently as there is no requirement for progression through new learning curves each time production is changed. A large complex functional structure creates a need for large centralised support functions such as administration. Functional people tend to prefer to stick to their own specialisation and may try to avoid being involved in cross-functional activities. As a result the structure can move quickly into financial deficit when workload diminishes temporarily. This approach cannot easily respond to fluctuations in workload. Functional arrangements are preferred by highly inflexible organisations such as government departments. Their career path and individual aims and objectives are nearly always tied to the function rather than to any individual projects that they may be required to work on. From a project perspective there are a number of disadvantages associated with the traditional functional structure. Cross-functional activities are discouraged. These organisations can only work effectively where there are clearly defined roles and responsibilities operating within a clearly defined chain of command.Module 4 / Project Management Organisational Structures and Standards • • • • • It is relatively simple and straightforward and is compatible with basic human instincts. This tendency can act as a brake on innovation. These in turn tend to develop boundaries that can act as barriers to effective communication. Functional sections tend to develop sub-groups. including the following: • It is inflexible. Functional objectives tend to be somewhat repetitive so people can use their experience from one aspect of production on the next aspect. Any project structure that attempts to operate within the functional structure will tend to be considered as of secondary importance. The functional managers can agree works programmes and timetables directly with support services such as IT. Different functional units can act as a control by having direct relationships with the various support services. police forces and hospital services. Functional structures tend to demand a greater degree of central support than some other forms of structure. Knowledge transfer. The functional unit can build up a library of specialist knowledge. The strict lines of accountability and specialisation tend to channel approaches and attitudes towards clearly defined functional roles. Edinburgh Business School • • • • • • Project Management 4/9 . Functional people tend to see the function as their future. The functional outputs tend to be the primary objective of the organisation. Specialist knowledge can be stored within the functional unit and shared around between the various functional members. Functional arrangements can only be justified where there is a continuous programme of work. As a result functional units often find it difficult to innovate and respond to change. even to a limited extent. People tend to specialise in a particular advanced area rather than try to develop a range of different advanced skills. IT and human resources.

3 and 4.2. These organisations tend to be split up into clear functional specialisations and also have a very clear chain of command based on specific power or authority levels within the structure.Module 4 / Project Management Organisational Structures and Standards Increasing authority Senior management Authority boundary Operational island Functional manager Functional manager Operational island Level 1 Production unit Production unit Production unit Production unit Team Team Function A Team Team Team Team Team Team Level 2 Level 3 Operational island function A Functional boundary Operational island function B Increasing number of people Figure 4. Project and matrix structures (see sections 4. Organisational islands tend to form in any organisational structure that has strong functional subdivisions and strong authority levels.3).2. These were discussed briefly in Module 1 (see also Figure 4.2. Organisation members become accountable both horizontally and vertically and they effectively have two sets of objectives. These effectively double – or more than double – the degree of communication that is present in the system. They owe allegiance to both the functional (vertical) and project (horizontal) teams.3 Organisational barriers to communication The main drawback with a pure functional structure is the development of operational or organisational islands. ♦ Time Out Think about it: organisational islands. This is inefficient. good examples are police and military organisations. as cross-transfer of co-operation could allow the formation of horizontal production units as well as those that run vertically. An operational island is a segment of the organisation within the overall organisational structure. and therefore have two lines of authority and accountability.4) address this inefficiency by forming horizontal lines of authority and communication.2. and it tends to act as a semi-independent sector within the overall organisational structure. but there tends to be relatively little communication and co-operation across the functional divisions. This makes them good at concentrating 4/10 Edinburgh Business School Project Management . Control and communications tend to flow down through the various functional divisions.

or other type of structure where there are no clear functional subdivisions. It is appropriate to an entirely different range of organisational types. Pure project structures are typically used for projects that are difficult to plan accurately and where resource requirements and provision levels cannot be accurately established beforehand. Internal project-management structures tend to generate organisational islands because the functional divisions are naturally crossed by authority or power divisions. after which it is disbanded. Project Management Edinburgh Business School 4/11 . In this arrangement. individual project managers can dip into this pool of available labour and draw a team of people together to become the project team. Typical examples would include research and development projects and any other type of application where the work itself is new or innovative. but they are very real and they have a significant impact on the operation of the organisation as a whole. what would they look like? What determines the number of organisational islands within an organisation? ♦ 4. The end result is a series of semi-independent islands throughout the organisation. there may be a ‘pool’ of available labour resources that is maintained by the organisation as a whole. An internal project-management structure partially addresses these and other problems associated with operational islands and is therefore the natural choice for any special team or project within such highly structured organisations. The specialists then go back into the pool for use on the next project.Module 4 / Project Management Organisational Structures and Standards on specific functional tasks. As projects are initiated. However.3 Pure Project Structure A pure project structure is more or less the antithesis of the functional structure. Organisational islands would not occur in a pure project organisation.2. The team stays together until the project is finished. Questions: • • What shape are operational islands? If you had to represent the grouping of organisational islands within a typical organisation. but it restricts their ability to form internal teams so that existing team members can work on one-off projects as well as the normal functional objectives.4. a pure project structure could exist as a self-contained section or unit within an otherwise purely functional structure.2. These are informal rather than formal islands. This means that people from within the same organisational specialisation can be separated from each other because they occupy different power levels. There are numerous examples of projects where it is not possible to predict accurately how long the project will last and what level of resources will be required. In its simplest form a pure project system would appear as shown in Figure 4. A pure project structure could also be used for an entire organisation in cases where functional specialisations and subdivisions are not required. They tend to lead to a greater overall sense of differentiation within the organisation and a general increase in the complexity of communications and authority.

4/12 Edinburgh Business School Project Management . there might also be a ‘pool’ of project managers. or word processors in a central typing pool. A major breakthrough. it is difficult to use them effectively within functional units.4 Example of pure project structure In large research and development organisations. by definition. These scientists are researchers and. The project might last longer than originally envisaged. The pure project nucleus could also exist within a functional organisation as shown in Figure 4.Module 4 / Project Management Organisational Structures and Standards Person A Person G Person J Person B Person H Project Manager Person E Person C Person K Person I Person D Person L Limits of resources available to the project manager Person F Figure 4. A project manager might suddenly need three more biochemists so that a breakthrough in this area can be fully exploited. their work involves researching into the unknown. with resources having to be committed to it for a correspondingly longer period. the pure project approach within the existing functional system can be permanent.5. For this reason. Examples would include drivers within a large multifunctional haulage company. The whole set of resources would be under the control of senior managers at higher level. or the discovery of a new item or process. In some cases. and he or she makes use of the various resource pools that are available within the organisation. carrying more than a hundred research scientists. A project team will generally be disbanded upon completion of its project and the individual project team members will return to the pool for use on other projects. Research and development projects have to have flexible teams so that the team can respond to changes in the development of the project. however. Another example of this arrangement is a research and development pharmaceuticals organisation. might justify a sudden change in the resource distribution of the company’s project teams. Each project manager is assigned to one or more projects.

It is common for such project organisations to be set up as joint-venture companies and often with governments as principal partners. Figure 4. the project itself is usually of relatively long duration. but the parent company may look after administrative functions such as paying the salaries of the project team members. such as clearance for market release or completion of clinical trials.6 shows another typical project organisation structure within a company. one-off projects where project team members have responsibility solely to the project. The pure project organisation may have total responsibility and authority for the design of a new product. Examples include working groups or parties that are set up by central government in order to carry out a specific investigation or piece of Project Management Edinburgh Business School 4/13 .Module 4 / Project Management Organisational Structures and Standards Central management Functional manager (production) Function manager (sales) Functional manager (personnel) Functional manager (testing) Testing control Project manager (product A) Project manager (product B) Resource Resource Resource Resource Safety Testing resource pool Figure 4. The pure project organisation would probably be set up to deliver a more visible project. There may be a range of individual project managers responsible for different areas of the overall project. In addition. others have functional support assigned to them by their parent company. A pure project system could also be the satellite of a parent set up specifically to deliver projects and could be linked to the parent company by a reporting system. This type of arrangement tends to exist for relatively large. This arrangement could be used for large one-off projects split into different project areas. Pure project structures can also exist as separate organisations.5 Possible pure project structure within a functional system Most projects within a functional organisation would tend to be internal projects for the sole benefit of the organisation itself. Project organisations often have total freedom within the limits of final accountability.

Shaded areas show project orientation. Informal communication lines are also much shorter and can develop more quickly and efficiently because of the lack of authority barriers.6 Typical project organisation structure Note: some sections omitted for clarity. Project team members do not have any functional loyalties. There is no requirement for negotiating with any functional managers or for interfacing through a project sponsor. The benefits of a pure project structure include the following: • • • • The system is flexible and responsive to change. Authority is contained within the project. The operational costs of the system can be quickly adjusted in response to variations in workload. Centralised support is much simpler and the overall size of the support Edinburgh Business School Project Management • • • • • • 4/14 . Formal communication lines are generally much shorter than in a functional structure. Innovation and evolution are not restricted. or projects to build publicly funded constructions (such as the UK’s Millenium Dome). research.Module 4 / Project Management Organisational Structures and Standards Board of directors Managing Director Program Manager Marketing Director Operations Director Financial Director IT Director Project manager A Project A Project manager B Project B Marketing input Operations input Financial input IT input Marketing input Operations input Financial input IT input Figure 4. Project staff have a clear reporting chain (albeit completely different to what might normally be expected in a functional system) and there can be no confusion about individual accountability and immediate reports. The project manager in charge of any particular project is in sole charge of that project and has complete authority and control over the project resources. This allows the project team to analyse problems and make decisions without having to progress through functional reporting and authority systems. They are not distracted from the project by preferred career paths or functional commitments.

Project managers (by definition) tend to think ahead. Project deadlines may create a culture where team members attempt to ‘cut corners’ in order to maintain good performance records. Higher levels of authority may have difficulty in interfacing with the various programmes and projects. This may give rise to further opportunities for support efficiencies. Some degree of centralised direction is needed and there has to be some form of command hierarchy. Most project management organisational structures exist somewhere between these two extremes. A pure functional organisation has no project subdivisions. A pure project organisation has no functional subdivisions. Initial operating costs may be high as it may be a considerable time before any projects are actually completed. It is generally much easier to incorporate external consultants within a pure project structure. Project organisational structures can exist in numerous formats. Most staff in a project structure will have some form of original functional specialisation. It can be difficult to compare the performance of individual projects where the projects are of a different nature. A sense of competition can sometimes develop between the various project teams. • • • • • • • • ♦ Time Out Think about it: organisational design for projects. From the project’s point of view. This may lead to increased early costs.Module 4 / Project Management Organisational Structures and Standards • • functions is generally much smaller than in a functional structure with the same number of employees. There is often a tendency for project managers to bring in key resources early in order to ensure that they will be available when required and with no delay. Project team members tend to have an underlying concern about long term commitment. It may be possible to execute a series of related projects as a single programme. A pure project structure does not have the same sense of permanence as a functional structure. However the pure project structure does have a number of disadvantages. This phenomenon can be particularly pronounced in terms of continuing professional development and in keeping in touch with the latest developments in the specialist field. the pure project system appears to be the best supporting structure. Project Management Edinburgh Business School 4/15 . including the following: • Several projects running concurrently may lead to a duplication of effort in some areas unless these projects can be executed and co-ordinated as a single formalised programme. Prolonged absence from a corresponding functional section can lead to this specialisation becoming diluted over time.

This arrangement is only one form of matrix.7. project management. Alternatively. that still makes use of the characteristics of each. This arrangement of each project team within an existing functional organisational structure is often referred to as internal. In reality. They represent the limits of the appropriate format for operations ranging from mechanistic and repetitive (pure functional structure) to research and innovative (pure project structure). where team members can be employed on. A matrix structure represents a compromise between pure project and pure functional forms. not all organisations exist at one of these two extremes. and with the number of people from each function assigned to each project clearly shown. the organisation might make wide and frequent use of project structures and therefore prefers to establish a number of project teams operating at different levels within the functional structure. It is ‘non-executive’ in that the project manager has limited (non-executive) authority within the system. The matrix organisation has been a very popular structure for organisations undertaking projects. whilst at the same time eliminating the disadvantages. Alternatively.4 Matrix Structure (Internal or Non-Executive Project Management Structure) Organisations can have pure functional or pure project structures. pure project structures can exist within purely functional systems.2. projects on either a full-time or a part-time basis whilst retaining their home in the functional discipline. One type of compromise between the two extremes. pure project structures are more appropriate for entirely different types of processes.8 shows a typical matrix structure for a company with different functional units. Figure 4. Pure functional structures are appropriate for one type of operation. Most large organisations occupy the middle ground. It is an attempt to combine the benefits of the functional organisation with those of the pure project organisation. where pure functional or pure project approaches would not make optimum use of organisational resources. is the ‘matrix’ structure. and offers a more efficient use of project and functional resources within a functional structure. Pure project and pure function really represent the extremes of organisational structure. It encourages horizontal communication and accountability. This concept is shown in Figure 4. or non-executive.2. the technical decisions on the project are 4/16 Edinburgh Business School Project Management . It may be that the organisation cannot establish purely functional teams within its existing functional structure. The matrix structure is the pure project structure overlaid on the functional divisions of the parent organisation. It is ‘internal’ because all aspects are within the organisational boundary.Module 4 / Project Management Organisational Structures and Standards Questions: • • In what type of situation might a pure functional structure be appropriate? Where could a pure project structure be used? ♦ 4. The matrix structure is suitable for projects of all sizes and natures. neither of which is promoted in the pure functional arrangement. It represents a combination of the pure project and pure function extremes. or assigned to. Usually.

such as in large construction projects. pure project and matrix forms the responsibility of the function whereas the resourcing. has 1 1/2 people assigned from the marketing department. Project 1. 1 1/2 from production and corresponding numbers from both finance and human resources. Strong matrix structures veer towards pure project structures and tend to be used on large projects where employees are assigned to projects on a long-term full-time basis. Strong matrix structures would therefore be encountered in a large multidisciplinary construction company. Matrix structures may be very strong or very weak or anywhere in between. Weak structures exist where the only full-time employee on a project is the project manager and everyone else Project Management Edinburgh Business School 4/17 .7 Pure function. scheduling and cost decisions are controlled by the project manager. managed by project manager 1.Module 4 / Project Management Organisational Structures and Standards Senior Managers Resource pool Resource Functional manager Functional manager Project Manager Resource Resource Resource Resource Resource Resource Resource Pure function Senior Managers Pure project Functional manager Functional manager Project manager Resource Resource Project team Project manager Resource Resource Functional team Matrix Project team Functional team Figure 4. depending upon the nature of the projects undertaken.

army. the project management chair.5 0. The main characteristics of an internal project-management structure are: • • • • • • • • • 4/18 functional boundaries.0 Figure 4.0 1.8 Typical matrix structure used on the project is commissioned on a short-term basis. power or status boundaries.0 Production Director 1. This is common on smaller.0 2. and it is important that these are understood. some of which also apply to other structural types.Module 4 / Project Management Organisational Structures and Standards Board of directors Managing Director Marketing Director Project manager 1.0 Financial Director 1. a project sponsor. all the people in the system would be members of the overall organisation. interface management. time recording and cost-centre charging.0 2. interfaces. organisational islands. Internal project management is a solution to the problem of organisational segmentalisation. shorter-term projects such as those carried out by advertising agencies. The typical boundaries within the structure are shown in Figure 4. local authorities. colleges and universities. police. An internal project-management system has a number of important components. Edinburgh Business School Project Management . the process of bidding. government departments. Examples would include large multi-trades contractors.5 HR Director 2. which tends to occur in all large and complex organisations. Matrix or internal project management structures are generally restricted to large organisations with a constant and predictable workload. Internal project-management systems have a number of other distinctive characteristics. The strength of a matrix structure can therefore be considered as being a function of component project time scale and life span.5 Project manager 2.5 0 Project manager 4.0 Project manager 0.5 3. Typically.5 1.9.5 0.5 2.

Generally. Only the higher-level managers can see across these functional boundaries – like looking out of an upper floor window across a row of gardens where people are working on different gardening projects. The only gateways through these barriers at lower levels are through interfaces (see below). Examples include university faculties or departments of a commercial company. The extent to which this occurs.Module 4 / Project Management Organisational Structures and Standards Senior management Functional manager Functional manager Power boundary Project manager Resource Resource Project team Project manager Resource Resource Project team Functional boundary Project boundary Functional team Functional team Organisational boundary Figure 4. • Functional boundaries. The boundary walls and fences restrict the awareness of each gardener.9 Typical internal project-management organisational boundaries Each of these is described in turn next. and the number of levels over which the specialisations develop. Project Management Edinburgh Business School 4/19 . These sections represent areas of specialisation (usually groups of similar departments. Functional boundaries run vertically through the system. which are headed by a functional manager in the form (in the first example) of a dean of faculty. They are like invisible walls that run through the organisation from the lowest levels to a point somewhere near the highest level of the status hierarchy. It is only at higher power or status levels (upper-storey windows) that people at that level can see across these boundaries. It should be remembered that functional boundaries act as barriers to communication. depend primarily upon the size and complexity of the organisation. all large organisations divide and subdivide into separate functional specialisations and they all therefore naturally evolve some kind of internal functional boundaries. such as engineering). The functional boundary defines the border or line of delineation between the engineering faculty and the other faculties. They define the areas of control of individual functions and are generally headed by an appropriate functional manager.

The board of directors of a large multinational company may only comprise perhaps twelve members.Module 4 / Project Management Organisational Structures and Standards • Power or status boundaries. senior lecturers. However. the whole organisation may employ hundreds or even thousands of people. Segments are created where two power boundaries and two functional boundaries define a specific grouping. there is always a risk that this competition over resources could change to destructive competition. typical segments would include lecturers in civil engineering and lecturers in mechanical engineering. Competition within the organisation. However. In an internal system. These groups operate within the same functional boundaries but at different power levels. the head of department may also be the dean or sub-dean of the faculty. Another example could include research associates and senior lecturers in mechanical engineering. These two groups operate at the same power level but within different functional boundaries. Edinburgh Business School Project Management • • 4/20 . is to be encouraged. especially if either the project or the functional team is put under increased pressure for short-term results. Project sponsor. One university department has its own power distribution. while the other does not. Power boundaries are those divisions that separate power levels within the system. there are relatively few individuals in positions of great power and high status. A particular person can have two bosses. with diminishing numbers of increasingly powerful individuals above them. The system as a whole tends to develop a power structure that can be represented as a triangle. The departmental power system therefore exists and evolves within the larger faculty power system. Large organisations tend to be subdivided by vertical (functional) and horizontal (power) boundaries. The functional manager acts as one boss. while the project manager effectively acts as another boss. However. At the top of the triangle. The head of department is the functional manager (at least at department level) and also at the tip of the power triangle. the project manager and the functional manager are both using individual employees as a shared resource. where the faculty itself forms another power system. This means that there is a risk of direct competition between the project manager and the functional managers over such resources. Power or status boundaries run horizontally through the system. There are large numbers of individuals at the bottom of the power structure. lecturers and research associates. in a university there is a power boundary between senior lecturers and the head of department. provided that it is healthy and constructive. Organisational islands. which is the university as a whole. One has executive authority. For example. each department might contain a head of department. In a university. Taking a university as an example again. In real organisations there are also individual sub-power boundaries within individual subsystems. This in turn operates within the largest collective power system.

Module 4 / Project Management Organisational Structures and Standards It is therefore important that this possible conflict and destructive competition between the project manager and the functional managers is monitored and controlled. The project sponsor must be prepared to adjudicate in disputes and to allocate resources and make executive decisions as required. each new project is developed up to a certain point by a sponsor. In this role. The project sponsor is primarily there to ensure that there is no destructive competition or conflict between the functional and project groupings. In such cases. In order to ensure that this does not happen. He or she has therefore to Project Management Edinburgh Business School 4/21 . In order to do this. the project manager sometimes acts almost as the sponsor’s deputy or even agent. The project sponsor is often a senior director and usually reports directly to the next line of authority above the project manager and the functional manager. in most internal systems.10). This is done. The role of project sponsor is sometimes extended to include that of ‘monitor’ of the project. A project sponsor is a key component of the internal project management structure. the project sponsor has to have authority over both the project manager and the various functional managers. Project sponsor Senior management Functional manager Functional manager Project manager Resource Resource Project team Project manager Resource Resource Functional team Project team Functional team Figure 4.10 Project sponsor ♦ Time Out Think about it: the project sponsor. the project sponsor assumes a certain responsibility for ensuring that the project develops smoothly and according to plan. That person then introduces the project to the system and monitors the progress and development of the project over time. the project sponsor must have executive authority over the project manager and the functional managers (see Figure 4. by introducing a project sponsor. The project sponsor acts as a moderator on any potential conflict between the functional managers and the project manager. In some organisations.

This involves working and communicating across three different organisational interfaces at any one time.11). Most project sponsors would be directly responsible for ensuring the smooth operation of a number of different projects.Module 4 / Project Management Organisational Structures and Standards be selected from the next authority banding up the organisational structure. The project manager works within three levels of control and countercontrol. Those interfaces are: project manager – project sponsor project manager – functional manager project manager – project team 4/22 (subordinate–boss) (peer–peer) (boss–subordinate) Edinburgh Business School Project Management . Questions: • • In what principal ways are the responsibilities of a project sponsor different from those of a project manager? Would a project manager or a functional manager make a better project sponsor? The Project The Project Management team structure Project Manager Project Team Functional Manager Project Sponsor Figure 4. He or she is essential to the effective running of the internal project management system. provided that the authority system within the organisation is configured for this. The project sponsor therefore acts as the ‘fourth leg’ of the ‘project management chair’ (see Figure 4.11 The Project Management Chair ♦ • The project management chair. A person could be both a project sponsor at one level and a project manager at another level.

• Interfaces. and thus as a barrier to communication. The project manager operates at a peer–peer level with the functional managers. This may sound simple and straightforward. In a university. Communications across the organisational boundary are likely to be more formalised. in the sense of a physical distance between two university departments. The tool for controlling these various interfaces. and the type and characteristics of the various information flows vary in relation to the boundary. One of the key requirements for an internal project manager is good interface management skills. a specific group. On large international projects. These interfaces could be physical. The horizontal and vertical boundaries running through the system act as barriers to communication and co-operation. These openings have to be controlled. Interface management is the management of the processes of communication and action across and within the various organisational interfaces. the project manager is the leader of the project team and therefore acts in a leader–subordinate role. In its simplest sense. to some extent. The tendency of all large organisations to evolve into organisational segments creates a related tendency towards communication restriction. it can be a very complex operation where the project team includes large numbers of members. and relate to. Interfaces are like gateways through barriers. it requires that good communication systems are set up so that information flows rapidly and accurately between the various components of the project team. They could also be psychological. Interface management. there may be no obvious need for communication between lecturers in civil engineering and those in mechanical engineering. For example. different design team Edinburgh Business School • Project Management 4/23 . often for contractual reasons. or it might be that change notices and other kinds of communication might have to be initiated in writing or using a standard form. The various boundaries within the system act as barriers to communication. physically separated by large distances. however. The boundary itself has holes or gaps in it through which information can flow. project and functional managers are equals and have to compete. and for monitoring all the communications that cross these interfaces. for resources. is known as an interface management system (IMS). The boundaries of each subsystem act as an interface. or tendency to associate with. All decisions and activities take place within a three-way continuum of accountability and reporting.Module 4 / Project Management Organisational Structures and Standards This arrangement puts the project manager in a relatively unusual position. It might be necessary to confirm all discussions in writing within a certain time. This affects the medium of the information flow and also the content. communications between functional boundaries might be by telephone conversations or by email. The project manager is directly responsible to the project sponsor. In addition. in the sense of the development of professional sentience.

the project manager might estimate that the preparation of the scheme’s early design drawings for a particular project will take 250 mechanical engineer hours. finance. If rejected. such as human resources. A similar process is applied to materials and plant. the committee is likely to comprise a number of people from a range of different sections within the organisation. cost control. • The process of bidding. The interface management system has to ensure that all information is identified and controls are put in place to ensure that all information goes to the correct people and within a predetermined time. or ‘dead wood’. In other cases. In practice. These hourly rates may or may not contain adjustments for overheads and profit. It is just as common for senior management to allocate people to the projects on the basis of functional manager recommendations. 4/24 Edinburgh Business School Project Management . a committee decision may be required and. Project managers often become embroiled in arguments over individual people at this point. the project manager would have to go back and look at ways of reducing overall costs. The bid may be accepted or rejected. In some cases. the project sponsor may be authorised to decide on the acceptability or otherwise of the bid. With internal systems. and so on. the most usual way of resourcing project teams is through some form of bidding. to the projects as this is a way of at least partially transferring or reducing the problem of bad staff. For example. The bid is then presented to the project sponsor for relay to senior management. This is one of the reasons why project managers need to have good organisational and leadership skills. It is common for functional managers to attempt to offload low-productivity staff. The calculation often involves consideration of availability windows for key staff and of estimated person-hour requirements for individual sections of the project. In this. Individual project managers are allocated to projects and are invited to develop a resource allocation proposal. The project manager will have individual hourly rates for these staff and can therefore calculate individual and overall fees totals for internal staff. It may contain some of the people that they asked for but not others. The bid often details individual identities as well as estimated time and costs.Module 4 / Project Management Organisational Structures and Standards members may be separated by large distances. The information is then monitored to make sure that any necessary actions are taken and the information is sent on to the next stage of the process. in this circumstance. plant and materials required for the project to be executed. which could include reducing overhead and profit allowances or reestimating person-hour requirements. Most project managers attempt to have at least some kind of say in who is seconded to the project team by the various functional managers. the project manager usually has to calculate the approximate costs of the labour. 35 cost consultant hours and 12 electrical engineer hours. most project managers end up with a project team that is a compromise.

The project retains flexibility and adaptability. because functional managers might well get annoyed if they feel that their people are spending time on the project while still being charged to the function. Large internal project-management systems tend to control time charging by some kind of activity-based costing (ABC). Edinburgh Business School • Project Management 4/25 . • • • The project operates as a self-contained unit and the project manager has executive control over its operation and development. this is one of the most common causes of conflict between project and functional interests within the organisation. Specialist software is being used increasingly for this function. thereby increasing the pressure on individuals in terms of both project and functional responsibilities. The close links with the functional units means that the project stays in touch with the operational objectives of the functional units and also (to some extent) with the overall strategic objectives of the organisation. costed and charged to individual cost centres. It can respond quickly to changes in events even though it exists within the more rigid functional structure. At the end of each time period. using either desktop PCs or handheld organiser computers. As soon as they transfer to working on functional information. Each individual in the system is a member of both project and functional teams. It is important that times spent on individual activities (and therefore costs) are charged to the correct project or functional cost centre – indeed. they simply press another button and the system records the times spent on each. resulting in less available time for functional duties. The hand-held computer features an organiser that recognises code inputs and automatically records time spent on individual activities within both project and functional activities. The good points of an internal project management system include the following. Project team members simply press a button when they are working on project information. The problem becomes exacerbated as other production variables affect workload. The project has reasonable access to the various functional units and can use this access for specialist input to the project. This kind of approach is being increasingly used by professionals to record times spent on individual areas. the information is downloaded and the system keeps a running total of how much time has been spent in each area. There might be a sudden increase in activity on the project.Module 4 / Project Management Organisational Structures and Standards • Time recording and cost-centre charging. or sickness and absenteeism might suddenly jump. The organiser usually contains a download facility so that time records can be downloaded every week or month with times spent on individual activities recorded. These machines usually feature a button-activated time recording system. This applies particularly when there are pressures on both the project manager and functional manager to control costs as much as possible. controlled and reconciled by means of a computerised timesheet-recording system.

Module 4 / Project Management Organisational Structures and Standards

• •

Internal project management within a matrix structure offers the best of both the project and functional systems to some extent. Internal project management effectively spreads the risk between project and functional profitability. Temporary failures in one aspect can be (to some extent) offset by the other. Internal project management allows efficient balancing of functional and project resources provided the necessary control systems are in place. Resources can be switched between one aspect and the other to absorb changes in demand. Internal project management promotes innovation and evolution within the organisation while retaining the functional foundation.

There are also some weaknesses in an internal project management structure including the following: • Balancing project and functional responsibilities is always a source of potential problems. The approach works provided the relationship between the project manager and the various functional managers is good. Conflict can occur where the relationship is not so good. Team members often do not like having two bosses because it can lead to confusion and conflict. The matrix overlap means that some responsibilities are effectively shared between the project and functional units. This can lead to a reduction in perceived accountability. For example the project manager is responsible for the success of the project but he or she will probably not have full control over the selection of the project team. This absence of full control can generate a tendency for people to take the view that ‘things are not their fault’. Project management is a complex area and project managers must have a specialist range of skills. Adding the matrix dimension, the requirement for negotiating with functional managers, and reporting to a project sponsor only makes the job more complex. Projects tend to be depleted of resources towards the end of the implementation life cycle. This can sometimes make completion very difficult. Project team members can sometimes have difficulty in re-adjusting to working back in a rigid functional unit on completion of the project. The requirement for a project sponsor introduces a new and additional level of authority and control. This will carry a cost implication and adds to overall control complexity.

• •

• • •

4.2.2.5

Mixed or Hybrid Structure
A special kind of organisation often develops in manufacturing industries when projects are housed in process divisions. For example, a project to develop new manufacturing methods might be based in the machining (functional) division. It could require the services of research and development personnel (project) and the structure could therefore have to be set up as a combination of matrix and functional forms as shown in Figure 4.12. Often, this type of organisation results in the project being spun off as a subsidiary company as it develops.

4/26

Edinburgh Business School

Project Management

Module 4 / Project Management Organisational Structures and Standards

Board of directors

Managing Director

Project A

Project B

Production

HR

IT

Figure 4.12

Mixed organisational structure

4.2.2.6

Summary Comment on Internal Projects
There are many forms that the structure of an organisation may take to support a project. Commonly, a hybrid will be the most suitable option given the existing structure and working procedures. Choosing the most appropriate structure for a particular project depends on many elements and these should be considered before settling on the best organisation to succeed. These include: • • • • • the project, its objectives, task, location and required resources; the existing structure of the organisation; previous experience of the type of project; the client and the contract; the project life span.

♦ Time Out
Think about it: internal project management. Internal project management is the most common organisational format where the team is drawn from within the organisation. The project manager either bids for staff or (sometimes more frequently) is told what staff are available. In most cases, staff members are shared between the project and their parent functional departments. This format generates for efficient use of resources but it gives rise to potential communication and accountability problems. Internal teams can also exist with external elements such as contractors or consultants. Most internal systems make at least some use of external contributors. Questions:

• •

What are the obvious disadvantages of an internal project management structure? How does the provision of a project sponsor address the problem of project manager and functional manager conflict?

Project Management

Edinburgh Business School

4/27

Module 4 / Project Management Organisational Structures and Standards

4.2.3

The Project External to the Existing Organisation Introduction
Project management structures are not limited to those that can exist within existing functional structures. In the UK, there is an increasing number of specialist project-management consultants that can be hired on a consultancy or agency basis. Organisations that do not have the required in-house specialisation or experience can hire these specialist project managers to set up and run projects that are executed either wholly within, partly within, or completely outside, the functional organisation. In such cases, the project team may comprise: • • • all internal people, but be managed by an external project management consultant; or a mixture of internal people and external consultants, all of whom are managed by the consultant project manager; or all external consultants, some or all of whom have been appointed by the consultant project manager.

4.2.3.1

The extent to which external people or consultants are involved, and the degree to which they make up the project team, depends upon the degree of surrogacy involved. Surrogacy in this sense refers to the extent to which the client wishes to delegate control or authority to running the project. Some clients want to hire a consultant project manager who will take over everything and run the whole project in return for a fee. In such cases the client wants minimum involvement and only wishes to see the end criteria met, with minimum interim involvement. An example would be a housing association giving complete control of a modernisation contract to a firm of consulting engineers. The engineers would act as project managers and manage all parts of the project from inception through to completion. The housing association might be happy if their involvement is limited to a development officer attending monthly site meetings. Other clients might want to retain more of a grip on the evolution of the project. These clients might have commissioned similar works before and know some of the problems that can occur. They may want to use this knowledge to influence the current project team to make sure that similar events do not recur. Typical examples would include a university that is setting up a combinedstudies course using external lecturers. The university might want all aspects of the teaching to be done by the externals, but might also wish to retain close control over the actual module content of what is delivered. The module descriptors, examination papers and assignments might therefore continue to be set inhouse. This kind of consideration is widely made by universities setting up distance-learning courses with overseas agencies. The long-term credibility of the course and the quality of the course will depend on the maintenance of quality standards. The university itself would almost certainly want to retain control over quality. Risk transfer is another major issue in external project management. In most cases, the appointment of an external professional consultant entitles the client
4/28
Edinburgh Business School Project Management

Module 4 / Project Management Organisational Structures and Standards

to some degree of protection from non-performance or negligence (see below). However, this does not generally extend to cover non-performance or breach of contract on the part of suppliers or contractors. In most cases, contracts remain between these companies and the client, and are not formed with the project manager as a contracting party.

4.2.3.2

External (Executive) Project Management Structure
External project management tends to be more applicable to smaller organisations. It is a far more flexible approach and is much more suited to organisations with variable workloads. External project management structures are sometimes referred to as ‘executive’ project management structures. The term ‘executive’ refers to the fact the project manager in this approach is the only team leader and has full authority and control over all components of the project team. He or she does not have to negotiate for resources with functional managers as is the case with internal systems. In an external system, different consultants act as agents on behalf of a client. Some or all of the consultants could work for different organisations. The external project manager, similarly, could work for a specialist project-management consultancy and could offer overall project management services, including control and co-ordination of the design team, as part of the management package. A typical external project management system is shown in Figure 4.13. In most cases, there would be a formal interfacing body to act as a buffer or gateway between the organisation and the outside world. This would apply particularly where formal contracts are involved, for example with external suppliers of goods. Formal contracts generally have to be written up and signed by legal specialists. These specialists are often employed in large organisations, working in a legal services or similarly titled section. It is their responsibility to draw up contracts and then monitor execution as the contracts are awarded. This section would also deal with any variations or formal changes to the terms and conditions of the contract. The project manager would generally interface with the externals through this legal services section, which offers professional legal service for all the projects that are contained within the organisation. There might also be a change control section, which would monitor variation orders and give various levels of approval for changes as required by internal regulations or contracts. An example of this arrangement is shown in Figure 4.14. Just as with internal project management systems, external project management systems have a number of distinctive characteristics and it is important that these are understood. They can be summarised as: • • • • multidisciplinary and shared loyalty group characteristics; fee structures; external contractual linkages; external non-contractual linkages.

Each is considered further in turn next.
Project Management Edinburgh Business School

4/29

Module 4 / Project Management Organisational Structures and Standards

Senior management

Interface manager

Functional manager

Functional manager

Power boundary

Resource

Resource

Resource

Resource

Functional team

Functional team

Functional boundary

External project manager

External consultants

External suppliers

External contractors

External subcontractors

Figure 4.13

Typical external project management system

Multidisciplinary and Shared Loyalty Group Characteristics An external project management system uses internal and external staff. With a high degree of surrogacy, virtually all the team members can be external, assuming that there will be at least some form of client representation or liaison. As a result, the project is a conglomeration of different companies and organisations that are in effect working together as an alliance to satisfy the project objectives. The reason that they do this is because they are paid to do so. They are usually paid in the form of fees for their external project management systems and therefore tend to be strongly multidisciplinary. They are also susceptible to shared loyalty characteristics. Each consultant and contractor is working for his or her own practice or company. The objectives of the practice or company are not the same as the objectives of the client. There will therefore sometimes be a conflict of loyalties between individual parts of the system. This tendency is an important element that the project manager must recognise and manage. The various groups are put in place as part of a project team for relatively short periods of time, working on relatively complex projects. External project management systems are therefore more susceptible to the problems of differentiation and sentience than internal project management teams.

4/30

Edinburgh Business School

Project Management

Module 4 / Project Management Organisational Structures and Standards

Senior management

Interface manager

Functional manager

Functional manager

Power boundary

Resource

Resource

Change control section

Resource

Resource

Legal services section

Functional team

Functional team

Functional boundary

External project manager

External suppliers

External contractors

External subcontractors

External consultant

External consultant

Domestic subcontractors Other external service providers

Nominated subcontractors

Figure 4.14

Extended external project management system

Fee Structures External project management systems also tend to be subject to much more open and competitive fee structures than internal systems. Until recently, the main professional institutions for engineering and design used to provide detailed fee-structure guidelines, which were observed by both practitioners and clients. However, in over the past ten years or so, deregulation coupled with increased competition has reached such levels that it is no longer possible to adhere to strict fee scales. Negotiated fees are now generally accepted as normal for most applications. Increasingly, consultants are using a fee bid package approach. The client might require the various consultants to look at the project in an outline form and make a bid in the form of a plan or proposal. This plan or proposal shows the bidder’s intended method of executing the project, together with a fee breakdown showing what fees would be payable and on what basis.
Project Management Edinburgh Business School

4/31

Module 4 / Project Management Organisational Structures and Standards

External fee structures can be based on either hourly rates or percentages. In the EU, most consultants on larger projects operate on a percentage basis. On smaller projects, it is more common to find fees based on an hourly rate. Total fees for a project could be agreed on a percentage basis where the consultant receives a fixed percentage of the contract total. Alternatively, a specific consultant might receive a fee that represents a percentage of the particular work element or package for which that consultant is responsible. In some cases, fees for a particular work package might be supplemented by a stated percentage for ‘management services’ or similar. Fees vary greatly depending on the type of consultancy, type of project, competition and other factors. Fees are often paid in blocks, or tranches, usually timed to coincide with major completion milestones within the project life cycle. Typical fee tranches would include: • • • completion of pre-contract works; completion of post-contract works; completion of final account.

Pre-contract works involve all design work carried out up to the award of the contract to the main contractor. Typically, for an engineering design team, this would be all the works involved in preparing the detailed design of the project. In addition, this design has to be transferred into a form that can be issued to tendering contractors for pricing, which usually involves the preparation of formal contract documents including full working drawings, schedules and specifications. Post-contract work covers all implementation inspections, additional design works for variation orders, issuing variation orders (in some cases), issuing new design works, and so on, right up until the issue of a certificate of practical completion, when the project is finished apart from final checks and running-in. For most engineering teams, post-contract work is dominated by carrying out inspections of the works as they proceed, and dealing with variation orders and change notices through the course of the works. Changes can lead to a lot of additional calculations and design work for design consultants. The final account is the documentation produced when the project is completed. It confirms that practical completion has been achieved and that all defects have been made good to the satisfaction of the client. It also acts as confirmation that all monies or works due under the contract have been paid and discharged to the satisfaction of both parties. Percentage fees are usually based on some predetermined project cost total. Designer fees are often based on measured works totals. ’Measured works’ simply means works that are covered by drawings and described in the schedule of rates or bill of quantities (or whatever schedule or measurement system is used in the preparation of the contract documentation). The measured works that are considered as the basis for designer fees calculations are usually limited to the works that are actually designed by that consultant. Works designed by other designers or by the contractor or any of the suppliers would generally not be included, although there may sometimes be an allowance for overall management responsibilities in the case of a ‘lead’ consultant.
4/32
Edinburgh Business School Project Management

Module 4 / Project Management Organisational Structures and Standards

Percentage fees may also be based on other totals, such as final account total. The final account total includes all measured works, and additionally includes elements such as variation order totals, expended prime cost and provisional sums, expended contingencies, and direct payments. On large projects, the final account total can be double the measured works total. It is therefore necessary to pay careful attention to which total is being used as the basis for the fees calculation. A typical professional fees build-up is shown in Figure 4.15.

Description of the professional services requirement This section will detail the basic terms and conditions of the appointment, covering such matters as the start and completion date of the commission, the items or end results to be generated by the professional, the maximum effort required and the appropriate professional services contract. This section would also generally refer to the appropriate form of professional agreement.

Statement of basic fees Basic fees payable in return for professional services as required. This section may also detail an outline of the standards of conduct required and the stage-payment systems that will operate.

Amount for additional works Extra hours Extra work input

Amount for expenses Travel allowance Extras allowance Nights away from home

Specific conditions Over and above the terms and conditions of the relevant professional services contract, this section sets out the specific requirements and appointment conditions that are applied by the client.

Figure 4.15

Typical fees build-up for a professional services contract

External Contractual Linkages With internal project management systems, the linkages tend to be within the organisation itself. Standard procedures operate within the overall framework of company standing orders and strategic management. External project management systems, in contrast, tend to have a much wider range of contractual arrangements. This is because the external approach has a wider range of external team members and therefore a higher degree of risk of non-performance. It is generally much easier to control individuals or groups who are part of the
Project Management Edinburgh Business School

4/33

Module 4 / Project Management Organisational Structures and Standards

organisation than it is to control those outside the organisational boundary. As a result, the inherent risk involved tends to increase as a function of the proportion of external dependency that is involved. This could apply to a greater or lesser extent depending on the degree of ‘trust’ that is present. External involvement can be more or less risky depending on factors such as the amount of previous co-operation, or the presence of alliances and partnerships or less formal ‘bonds’ or co-operative working practices. Contracts are the most common approach to controlling risk where there is a significant external element. External project management systems can feature a wide range of contract types, from standard forms and supply contracts to professional services agreements. The types and range of contracts used will depend on the specific application within the external system. The contract between the client and the contractor will be different from the contract between the client and the project manager. The contracts address different risks and offer different levels and types of protection to each party. Generally, contractual linkages can take one of three primary forms, as follows: • Completion contracts. Completion contracts are generally one-off contracts where the contractor agrees to supply the specified goods and services, usually at some kind of agreed cost and by a specified date. An example would be a standard supply contract, such as a contract of sale to supply a component for a new IT system from an external specialist supplier. Term contracts. Term contracts are long-term agreements. The supplier agrees to supply goods at an agreed rate to an agreed standard for a fixed term. A typical example would be a supply contract to supply all required IT components for the next five years. Term contracts are widely used for reasonably predictable routine and repetitive works such as maintenance and repairs to IT systems. They offer the advantage of fixed prices for works of a routine and reasonably foreseeable nature over an agreed period of time. Service-level agreements. Service-level agreements (SLAs) are contracts where the level of service is set rather than the performance of a specific outcome. An SLA for IT maintenance might specify that 99 per cent of all systems must be operational at any one time, and that individual breakdowns must be responded to within a maximum specified time. In return, the IT service provider would be paid an agreed fee. Sometimes this fee might vary in relation to workload or demand, but generally it will be fixed for the duration of the SLA. Most SLAs build in some form of protection, usually in the form of damages that are payable to the client by the service provider for gross time when the service level does not achieve the minimum levels stipulated.

Completion, term and service level agreement contracts can be priced and arranged in two primary ways, namely through a competitive contract or through negotiation. Competitive contracts are generally put out to tender by the client, with the competition either open or selective. Open competition usually involves bids being invited from ‘all-comers’. Selective tendering usually involves bids being
4/34
Edinburgh Business School Project Management

Module 4 / Project Management Organisational Structures and Standards

selected from an agreed short list of approved bidders. Open competition obviously gives greater opportunity for savings, but it has the disadvantages of allowing in possible poor-performing organisations and requires the generation of large numbers of tender documents. Competitive contracts usually involve the submission of sealed bids in relation to accurate contract document specifications and descriptions. The bids are usually opened at an agreed time in an effort to negate any attempts at collusion. Negotiated contracts do not involve direct competition. The client negotiates price and conditions directly with a contractor or supplier. The obvious disadvantage is that the client does not have the opportunity to benefit from the lower contract price that could almost certainly be achieved by the use of competitive bidding. Negotiated contracts are often used as extensions to existing contracts or where the work is highly specialised or where there are only one or two suppliers or contractors capable of complying with the requirements of the contract. Within these classifications, individual contracts can take a number of different forms: • Fixed-price contracts. Fixed-price contracts are those where the cost of the project is agreed and fixed in some way in advance. On larger projects, the usual way of fixing a price is by some form of competitive tender. The price could be completely fixed, in which case the contractor will almost certainly inflate the tender sum in order to cover the risk of price increases in the goods or services being supplied. The primary consideration is the risk for contract cost increases caused by supplier price increases. Cost increase risk can be spread between suppliers and clients depending on the type of contract being used. Some clients prefer fixed-price contracts (supplier risk); others prefer variable-price contracts (client risk). The compromise would be a fixed-price contract with fluctuations. The client would bear the risk of price increases across a schedule of pre-agreed items. The contractor or supplier bears the risk of any cost increases not covered in the fluctuations schedule. Fixed-price contracts might also be developed in association with an incentive fee. The fee is a payment direct to the contractor in relation to the extent to which the fixed price is met. This could include strict control of the expenditure of contingencies, reserves, provisional sums etc. A fixed-price contract clearly requires the contractor to measure all aspects of the contract carefully before making a bid. The level of contract information required is therefore much greater. Contractor estimating has to be very accurate because overall profit depends on accurately forecasting costs. In addition, there will inevitably be some unknown variables and the contractor will inevitably include higher contingencies to allow for these. Cost or cost-plus contracts. Cost or cost-plus contracts sometimes use a fixed fee. In this case, it is the company profit that is fixed at the outset, rather than the price. The risk to the company is therefore low, with the obvious exception of uncontrollable commensurate risks. This type of contract is sometimes used where there is insufficient design or product information to allow accurate pricing. The contractor effectively contracts to
Edinburgh Business School

Project Management

4/35

Module 4 / Project Management Organisational Structures and Standards

use its best efforts to do the work efficiently, but the fee is fixed irrespective of actual performance. The advantage of this system is that little or no design information is required, and bids can therefore be produced quickly and cheaply by contractors. In addition, the contractor bears relatively little risk. A cost plus percentage fee contract offers more flexibility. However, as the fee is a percentage of the overall cost of the project at final account, there may be little incentive for the contractor to reduce project costs. A cost plus incentive fee contract attempts to answer this problem by paying a fee that is derived from an agreed formula that compares actual cost to target cost at each interim valuation throughout the project. • Reimbursement contracts. Reimbursement contracts are an alternative to the foregoing. In this case, the contractor performs the project at the contractor’s own expense and then claims this amount, plus a fee every month. The contractor is therefore reimbursed for this expense. Fees can be fixed or variable. A variable fee might increase in proportion to overall cost savings, while it might decrease as overall costs increase. This can take the form of a direct incentive where the savings (if any) might be shared between the client and the contractor. Target-price contracts. Target-price contracts relate to a target price plus a fee. In this case, the client and contractor agree a target price. The contractor is paid this amount in instalments, plus a fee. In some cases, if the target is exceeded, the fee is reduced; similarly, if the target is not exceeded, the fee may be enhanced. This reduces client risk by giving the contractor or supplier an interest in achieving an economical project cost. In some cases, there may be a performance indicator or cost limit upon which the fee or variable fee is triggered. The target cost is generally the overall cost that the contractor would expect to incur in performing the contract under normal operational conditions. It therefore also acts as a measure for evaluating the true or actual cost at the end of the project.

Fixed price and cost contracts account for the vast majority of contracts issued in most industries. They represent the two extremes of risk for clients and contractors. The client’s risk is clearly greatest in the case of a cost-plus contract, while it is lowest in the case of a fixed-price contract. The contractor usually compensates for this by increasing tender prices. In addition, individual contract types can take a number of different forms, as set out next: • Standard forms of contract. Standard forms of contract have clear terms and conditions. They usually make specific provisions for default and determination and are designed for (usually) reasonably equal risk allocation. They have a definite statement of recourse for defaults (such as arbitration and litigation). The usual remedy is damages for breach. Standard forms of contract usually contain clear and systematic clauses that express the obligations of each party under the contract. These clauses often incorporate
Edinburgh Business School Project Management

4/36

Module 4 / Project Management Organisational Structures and Standards

feedback from case law and try to cover and allow for every possible eventuality. As a result, they tend to be large and complex. Standard forms of contract are often large documents and can contain large numbers of detailed and interrelated complex clauses. People tend to become familiar with these clauses because the contracts are standard forms. The same basic wording is used for clauses every time the contract is issued. Standard forms of contract are usually written by associations or tribunals that are intended to represent the interests of clients, contractors, subcontractors and anyone else who is likely to be a party to the contract. An example is the Joint Contracts Tribunal (JCT) Conditions of Engagement. • Professional services contracts. Professional services agreements are typical of contracts for services, such as hiring a project manager. They contain mostly implied terms. Specific terms relate primarily to a few items such as fees and dates for partial or full completion. Performance is related to the professional standards of the appropriate professional body. The usual remedy is damages for negligence. This format is used because it would be inappropriate to attempt to define the obligations and duties of the professional services provider in too much detail. He or she is a professional, providing professional services, and it is up to that person’s professional judgement as to how those services should be provided. The only minimum standards are those that are set by the relevant professional association and/or the rights of the client under common law.

Professional services contracts are usually written by the appropriate professional body. An example is the Association for Project Management’s Conditions of Engagement. • Supply contracts. Supply contracts are for the supply of goods. These typically specify the goods and give variables such as delivery dates and storage requirements. They usually stipulate the purchase price and any discounts for cash or early payments. They often refer to some kind of technical summary or specification, and provide some form of warranty or guarantee cover for the goods. Supply contracts are generally written by the suppliers themselves; they may contain ‘small print’ that has to be scrutinised where new companies are being used for the first time. Subcontract agreements. A subcontract agreement is where a person who enters into a contract as a contractor sublets some or all of that contract work to a third party. This type of arrangement is very common; it allows the main contractor to adopt a management role that consists largely of managing teams of subcontractors. This means that the main contractor still tenders for the work and is paid for it, but that contractor is freed from the requirement to hire large numbers of operatives as direct employees. This in turn means that the main contractor is removed from the risk of associated overheads. Domestic subcontract agreements are those where the contractor is free to choose what work is subcontracted, and to whom these works are to be awarded. Nominated subcontract agreements are used where the client wants
Edinburgh Business School

Project Management

4/37

Module 4 / Project Management Organisational Structures and Standards

a specific subcontractor or supplier to carry out a particular part of the project. Typical examples would include the supply and installation of high-quality or specialised components. Nominated supply contracts might be used where the client wants a particular supplier to supply a given material. This often happens with IT systems where the client wants a particular supplier or manufacturer for IT hardware. Nominated subcontract and supply contracts are often a three-way contract between the client, main contractor and subcontractor. There are often implied liabilities for defects (increased client risk). Generally, liability for performance of the main contract remains with the main contractor. Domestic subcontract agreements are generally written by contractors; subcontractors are obliged to accept the terms and conditions stated if they want to work for the main contractor. Nominated subcontract agreements are generally standard forms and are written by collective associations or tribunals in an attempt fairly to represent the interests of all parties. • Pro-forma contracts. Pro-forma agreements are generally written by one party for imposition on another party. Typical examples are contracts for services by monopoly or near monopoly organisations. In pro-forma contracts, the terms and conditions are largely written up by the service providers. The onus of responsibility is therefore borne by the client. It can be very difficult to enforce performance. In some cases, risk avoidance can be by warranty and guarantee.

Typical contractual links within an external project management system would include a number of relationship links. Some of these are based on standard forms of contract with clear terms and conditions. Others are based on professional commissions which offer professional services based on codes of practice provided and maintained by the relevant professional bodies. There are other linkages within the system (see following sections) but contractual links are by far the most complex. Typical contractual links in an external system would include the following: • Client to project manager and other design team members. These contractual linkages would be primarily professional services contracts. The project manager might be engaged under a specific contract such as the Association for Project Management’s Conditions of Engagement. The other professionals in the team might be appointed under the professional services contracts of their respective professional bodies. In other cases, standard professional services agreements might be used. Client to main contractor. These are generally standard forms of contract. They have clear and precise terms and conditions of contract. The contract clauses set out the exact obligations of each party under the contract. Client to service authorities. These are primarily supply agreements. Supply bodies often enter into contractual arrangements using pro-forma supply agreements. This is common with service suppliers such as gas, electricity and water infrastructure and/or supply companies; it holds to some extent
Edinburgh Business School Project Management

4/38

Module 4 / Project Management Organisational Structures and Standards

with telecommunications companies. These agreements tend to be biased in the supply company’s favour. As agreements, they have often been developed over several years, and in format they often date back to when most such service companies were operating as monopolies. They are notoriously difficult to enforce and the wording of the agreement tends to leave the service company with plenty of room to manoeuvre if anything goes wrong. These contracts are often relatively weak and represent a relatively high risk for the client. • Client to nominated subcontractors and suppliers. These are primarily nominated subcontract and supply agreements. They apply where the client has named a given subcontractor or supplier. The subcontractor or supplier is nominated to the main contractor, who is then obliged to enter into a contract with that supplier. Standard forms are available, the most common being JCT-nominated subcontracts 1–4 (NSC1–4). In such cases, there are two contracts to consider. The nominated subcontractor signs a contract with the client and another with the main contractor. These tend to be relatively strong links as they have clear terms and conditions. In terms of contractual risk there are several issues to consider. Domestic subcontractors or suppliers are appointed by the contractor. The appointment is at the contractor’s discretion and therefore the contractor carries the risk of a default on the part of the domestic subcontractor or supplier. The standard form of contract between the client and main contractor usually makes clear the extent of the obligations and liabilities in relation to the domestic subcontractor or supplier. Nominated subcontractors are nominated by the client. The client therefore carries the risk of a default, provided that the default does not result from any actions of the main contractor that could be interpreted as a default under the terms and conditions of the standard form of contract between the client and the contractor. An obvious example would be the case where the main contractor is paid by the client where this includes monies due to the nominated subcontractor, and the contractor subsequently goes on to default on making the payment due to the nominated subcontractor. Client to local authority. These contracts are primarily regulated by statutory requirements. They include requirements such as mandatory inspections and the issue of certification such as a safety certificate. Most construction projects, for example, will generate a requirement for some form of planning permission and other statutory consents. In most EU countries, there will be a requirement for the equivalent of building warrant, structural certificate, fire certificate and perhaps safety certificate for construction works. A building warrant, or its equivalent, shows that all aspects of the building have been designed in accordance with the requirements of that country’s building regulations or equivalent. The structural certificate is evidence that the structural calculations have all been carried out in accordance with the relevant design codes and codes of practice. The fire and safety certificates show compliance with specific fire and safety regulations.
Edinburgh Business School

Project Management

4/39

Module 4 / Project Management Organisational Structures and Standards

Generally, local authorities have statutory obligations with regard to response times and fees. However, it can be very difficult to recover costs that have been incurred as a result of slow local-authority response times. The typical arrangement of contractual linkages in an external project management system is shown in diagrammatically form in Figure 4.16.

Senior management

Interface manager

Functional manager

Functional manager

Power boundary

Resource

Resource

Change control section

Resource Functional team

Resource Functional team

Legal services section

Functional boundary

External project manager

External suppliers

External contractors

External subcontractors

External consultant

External consultant

Domestic subcontractors Other external service providers

Nominated subcontractors Authority links Contract links

Figure 4.16

Typical contractual linkages arrangement for external project management

♦ Time Out
Think about it: organisational linkages. Organisational structures are held together by linkages. These define the channels of communication, lines of authority, and locations of contracts within the system. The characteristics of the system will define the characteristics of the linkages.

4/40

Edinburgh Business School

Project Management

Module 4 / Project Management Organisational Structures and Standards Generally. the functional manager and project manager would operate at the same power level. authority links emanate from the top of the hierarchy and run downwards through the various power and control levels within the organisation. it would not be possible to run an external project management system as the risks would simply be too great. Any restrictions of this nature will have to be redefined within the contractual linkages. Authority links are different from communication links. and each is described next: • Authority links. In most internal cases. For example. Without them. The requirement for contractual ‘cement’ is therefore significantly greater. Authority links define the power and control structure that operates within the system. What are these problems likely to be? Different levels of variation might require different levels of authorisation. This may be considered necessary in order to protect against escalation in the cost of the project as a result of the issue of uncontrolled variation or addition notices. an external project management structure will require a greater number of contractual linkages than an internal project management system. In most internal project management systems. However. The external system has a higher degree of heterogeneity and greater dependence on a range of different external organisations. but only the project manager or a designated authority is actually allowed to issue an instruction to that subcontractor. They are essential in terms of allocating and managing risk. external project management systems cannot work effectively when linked by contracts alone. The contracts form the basic structure of the external system. How could this be rationalised within an overall project change-control section? ♦ External Non-Contractual Linkages Contractual linkages provide the framework for the operation of the overall system (both internally and externally). There are two other types of linkages that are essential for any external project management system. The main contractor’s contract with the client might in turn state that all instructions issued to the main contractor must be issued by the designated person and by no one else. Edinburgh Business School Project Management 4/41 . the standard form of contract between the subcontractor and main contractor might specify that instructions can only be accepted through the main contractor. Questions: • • • Why might it be important to restrict who can issue variation orders or changes to the contract? Problems can arise if the project manager tries to centralise control of all variations. The project manager might set up the control system to allow individual contributors to talk to (say) a subcontractor. These are authority links and communication links. The project sponsor would usually be one level up. so as to have executive authority over all members of the functional and project teams.

This arrangement is shown in Figure 4. They are lines of control that are established by the client when deciding on the overall organisational structure for the project.17. Authority links are not the same as contractual links. There is unlikely to be any contractual link between the consultant project manager and any other external consultants. the client might transfer 90 per cent of authority. the project manager is given the authority to control the other external consultants. The project manager would then interpret these instructions and in turn disseminate requirements down through the hierarchy of control. in which case responsibility for all authority would be transferred. the consultant project manager will almost certainly be delegated with the authority to give the other consultants direct instructions. depending on the degree of surrogacy within the agreement. However. In other cases. a project manager in an external system acts as an agent on behalf of the client. the client would be at the head of the structure. However. They are not necessarily backed up by any form of contractual agreement or arrangement. the contractual risk of the consultants making a mistake or acting incorrectly is still firmly borne by the client. Client representative Legal services section External consultant External consultant External project manager External contractor Subcontractors Authority links Contract links External suppliers Subcontractors Figure 4. and they need not necessarily follow the same routes through the organisational structure. but retain strategic or milestone control over key stages. For example. Authority links reflect the authority distribution within the system.17 Possible authority and contractual links for external consultants In this case. This is the classic agency arrangement. and would relay instructions directly to the project manager.Module 4 / Project Management Organisational Structures and Standards In most external project management cases. the client might devolve all authority to the project manager. In some cases. Lines 4/42 Edinburgh Business School Project Management .

The project manager is therefore accepting limited risk in terms of non-performance by the other project team members. • Communication links. in order for the system to work. This would give rise to the obvious risk of communications being made that bypass the project manager. In other words. The project manager is therefore only party to the contract between the project management practice and the client body. Communication links define the individual lines of communication in the system. The change control section would issue the actual instruction. the project manager is generally the focus of the authority and communication links. The various contracts have to be drawn up and controlled by the legal services department. Communication links. but these must actually be issued through some kind of change control procedure. they all centre on the project manager. the CMS would almost certainly allow the consultant project manager to communicate directly with the consultants concerned in order to discuss the scope and objectives of the variation.Module 4 / Project Management Organisational Structures and Standards of authority that can be expected in internal project management systems are wholly different from those that can be expected in external project management systems. Project Management Edinburgh Business School 4/43 . nor of the authority links within the system. and the communication needed in order to arrange it is directly between the project manager and the consultants. depending on the application. A typical arrangement between a consultant project manager and the other external consultants might involve a number of different sections and channels. the CMS would almost certainly state that the project manager has the authority to request changes or issue instructions. However. However. The variation or instruction is issued through change control. the project manager would expect to retain communication and authority control over the other external team members. He or she is being paid a professional fee to manage the residual project risk and to ensure good performance from the other externals. In most external project-management scenarios. In terms of authority. Most project management configuration management systems (CMSs) define the authority and communication channels within a project system (see Module 7). It should be remembered that an inadequate communications system is one of the main reasons for failures in projects. the contract is through legal services. but they may also follow different paths. This situation can be illustrated by extending the example used above.18 where. This arrangement is shown in Figure 4. Communication links are also very important but they do not necessarily reflect the layout of contractual links. which could take place through an individual or a panel and apply to all instructions or only to those above a certain value. although the three lines follow different routes. It would generally be inadvisable to allow a communication link to exist between the client and the other externals. The actual professional services contract would probably be between the legal services section of the client organisation and the relevant consultant. might follow the same paths as contractual and authority links.

The client might issue variation orders or change notices directly to external consultants without the project manager being aware of them. Changes valued at greater than £100 000 might have to be referred directly to the client representative for a decision.Module 4 / Project Management Organisational Structures and Standards Client representative Organisational boundary Authority links Contract links Communication links External consultant External consultant Legal services section External project manager External contractor Subcontractors Subcontractors External suppliers Figure 4. It is also generally prudent to give the project manager authority over the various externals for more or less the same reasons. In this arrangement. 4/44 Edinburgh Business School Project Management .19 in order to eliminate this possibility. the project manager can issue change authorisations up to a predetermined amount (say £10 000). It is widely encountered in public-sector projects and is often incorporated as a standard element in the authorisations control procedure for the project. the project manager has to refer the change request to the change control authority. This type of ‘filter’ control is very common on larger projects. Change control might be able to authorise increases up to £100 000 in value and signify approval directly to the project manager. More than this. It is really an essential component where costs have to be controlled within acceptable limits. contractual and communication arrangements for external consultants The classic result of this would be the introduction of creeping scope and cost escalation.18 Possible authority. Some organisational structures would introduce a change control section as shown in Figure 4.

although they tend to be simpler in format and operation.Module 4 / Project Management Organisational Structures and Standards Change control Client representative Authority links Contract links Communication links Legal services section Organisational boundary External consultant External consultant External project manager External contractor Subcontractors External suppliers Subcontractors Figure 4.19 Possible authority. Some obvious advantages are listed below: • • • It is flexible and adaptive. Edinburgh Business School Project Management 4/45 . with change control ♦ Time Out Think about it: external project management. The use of external specialists can bring new ideas and approaches into the organisation. The normal organisational lines of accountability and communication are not present and the whole system is held together by different types and forms of contract. contractual and communication arrangement for external consultants. In external systems. Questions: • • • What does ‘agent’ mean? How does a professional services commission differ from a standard form of contract? What are the primary characteristics of each form of contract? ♦ External project management has a number of advantages and disadvantages. External project management is the usual form where an external consultant project manager is commissioned by a client. the project manager acts as an agent on behalf of the client and is appointed through some form of professional services commission. It can respond rapidly to change. These structures are far more heterogeneous than internal systems.

1 4/46 . These include the broad considerations listed below. These elements are retained in the matrix structure. • • • • 4.4 Criteria for Selecting the Organisational Structure Broad Considerations The decision on the type of organisational structure to adopt depends on a range of factors. External specialists have no loyalty to the organisation or commitment to the project. The risk profile of the organisation in general and of the project in particular changes significantly. A whole new administrative and control system is required as soon as external contracts are involved. Communications with external specialist can have contractual implications. The possibility of arbitration and litigation enters the risk equation. The pure functional form uses a traditional reporting structure with a clear line of authority running down through the structure. External project management structures also have a number of disadvantages. Some obvious examples are listed below: • • • • • External specialists tend to be expensive.4. Recourse against poor performance can be difficult and the level of authority and control that can be exercised over external specialists is limited.Module 4 / Project Management Organisational Structures and Standards • • • • • Areas of work where there is no in-house specialisation can be outsourced to appropriate external specialists. Internal risks such as key people being unavailable can be avoided.2.2. Specific specialism demands can be met. Everybody has a clear set of objectives and there is a clear reporting line. An appropriate structure can be established relatively quickly and easily and it can be staffed with the optimal range of specialists. The team can be disbanded quickly and easily if workload or demand changes. More rigid and controlled communication systems are required where communications cross the organisational boundary. but are clouded to some extent by the presence of Edinburgh Business School Project Management 4. The team can be assembled from the range of external specialists that are available and the best fit of skills can be engineered to meet specific project requirements. The involvement of additional internal sections (such as legal services) may be required. The already complex job of the project manager becomes more complex still. It is relatively straightforward to set up a control system that can measure the performance of individual sections and units. Individual section heads control subsections through subsection leaders. • Authority.

Enhanced communication can be particularly useful where an element of innovation and evolution is required. Knowledge transfer. Individual progression may or may not be related to the success of individual projects and a different loyalty culture is required. This means that more stringent communication and co-ordination systems are required. as employees tend to associate their career progression with the functional section. Functional sections tend to rely on the use of existing technology in order to manufacture or produce something. In a matrix structure this loyalty can be shared to some extent as individual project team members remain members of their appropriate functional sections. Loyalty. Knowledge transfer in a pure project structure tends to be restricted to areas of commonality between individual projects. but it may be difficult to control a number of projects that are running concurrently. because project teams tend to look at problems in a different way they may generate a demand for new technological innovations or for the use of existing technology that has not previously been used by the Edinburgh Business School • • • Project Management 4/47 . Formal communication is easiest in a functional structure but the informal communication network may encounter blocks in the form of functional boundaries. Functional knowledge is the easiest type of knowledge to store and use in future operations. A matrix structure reduces these blocks to some extent and particularly opens up formal cross-functional communications. This can lead to situations where functional team members perceive their prime objectives as pursuing the goals of the function and the project may be seen as secondary. pure project structures tend to be used in research and development when the object of the research is to develop new knowledge rather than to use existing knowledge in order to manufacture a product. Authority boundaries may restrict both formal and informal vertical communication. In some cases this is not a problem.e. The performance of individual sections and units becomes more difficult to assess. New technology and the use of existing technology impacts on all three systems. A functional structure tends to develop the greatest individual loyalty. A pure project structure makes the greatest use of informal communications and offers the most flexible communication solution. A matrix structure allows functional knowledge to be used in projects. A pure project system offers shorter lines of communication and immediate accountability. more than one boss.Module 4 / Project Management Organisational Structures and Standards projects running across the functional boundaries. In a matrix structure the project teams are more likely to use existing technology to innovate. • Communication. Technology. In addition. and the projects themselves can develop new knowledge that can be fed back into the functional knowledge store. For example. There is an immediate risk of confusion and contradiction. The projects introduce another level of accountability and individual team members have more than one reporting line i. A new level of control through the project sponsor is required. The situation is entirely different in a pure project structure.

They may make use of appropriate technology specialists as part of their research and development function. A matrix structure generates a higher co-ordination demand. and the project manager has to design the project structure and then incorporate it into whatever is already there. The functional managers concentrate on functional objectives in the knowledge that decentralised support in areas such as IT and administration will be provided from the centre. The pure project structure is the most flexible approach and can produce the lowest running costs.2. Furthermore.2 Project Objectives and Choice of Organisational Structure In most cases. They are inflexible to changes in workload and the structure can generally only be justified where a constant stream of similar work is demanded. the organisational structure of the company is pre-set. Pure functional structures tend to have large fixed costs. Co-ordination. especially if the project involves new technologies or approaches to production. • • • Where the workload is constant and only varies slightly. 4.4. given a particular primary project objective. • Cost. Where projects are required only infrequently. Pure functional structures have the most formal reporting systems and therefore the degree of co-ordination required is low.20.Module 4 / Project Management Organisational Structures and Standards organisation. some more detailed considerations are given below. they are summarised in Figure 4. Enhanced co-ordination is necessary because projects run across functional boundaries and the potential for destructive competition and conflict is increased. An efficient function-driven organisational structure reduces the co-ordination requirement to relatively low levels. Edinburgh Business School Project Management 4/48 . Pure project structures tend to produce the greatest demand for innovative technology. Pure functional structures require well-developed centralised support functions. The following listings are intended to provide some ideas for which type of project structure might be most appropriate. Large projects may have their own administration and IT support. Matrix structures have a similar requirement but some level of support may be devolved to the individual project managers. A pure functional organisational structure should be chosen in the following circumstances. Pure project structures may require little or no centralised support. Pure project organisations require similar high levels of co-ordination in order to avoid the possibility of duplication of effort. • • In terms of selecting the appropriate organisational structure for a project management requirement. Support functions. The matrix structure is more flexible in that the project teams can be increased or decreased in size depending on workload variations. It is more a process of re-engineering and adaptation than it is a question of designing a suitable project structure from first principles. Where there are well developed centralised support functions.

informal communication systems are acceptable. informal communication systems are not required. some degree of change has to be accommodated. projects are secondary but of significant importance.Module 4 / Project Management Organisational Structures and Standards Pure function Matrix Pure project Infrequent projects Full outsourcing Reduce overheads Multiple technologies Common use of resources Complex production system Fast response times needed High degree of uncertainty Long term projects Large numbers of people committed to project Figure 4. split authority structures are acceptable. the functional objectives are the primary concern of the organisation. any projects are small to medium sized. centralised support functions are present or partially outsourced. A pure project organisational structure should be chosen in the following circumstances. projects are frequently required. fast project response time is not generally required. there is adequate back-up for key personnel. change is unlikely to be a major consideration.20 Functional versus project structures • • • • • • • Where Where Where Where Where Where Where clearly defined authority structures are required. Project Management Edinburgh Business School 4/49 . a degree of research and innovation is required. fast project response time is not required. A matrix organisational structure should be chosen in the following circumstances. any projects are relatively small or insignificant. • • • • • • • • • • Where Where Where Where Where Where Where Where Where Where workload is variable.

External systems are appropriate where the existing organisation is smaller and where more flexibility in the handling of operatives and consultants is required.2. The university might have assessed the market in detail and subsequently decided that there is a genuine demand for courses in engineering project management at this level. authority can be almost entirely devolved to project managers. The starting point would be for the university to look at its existing organisational structure. 4. It can exist within and outside organisations. 4. 4. there is little or no centralised support function. This is typical of small working parties within large organisations. high levels of change are present.5 Summary Project management does not have any single organisational form. One example is based around an internal project management system for a university that is setting up a new multidisciplinary course.3. Within this range. or in a combination of both positions. projects are the primary concern of the organisation. It is one example of a matrix organisational form.Module 4 / Project Management Organisational Structures and Standards • • • • • • • • • Where Where Where Where Where Where Where Where Where the workload varies significantly. The most common form of internal structure is the internal project-management matrix structure. a high degree of research and innovation is required. project management can exist either internal to the organisation or outside it.1 Examples of Organisational Structures Introduction This section considers some possible project-management organisational structures.2 Example of an Internal Project Management Structure Assume that a university wants to set up a new postgraduate multidisciplinary course in engineering project management.21. where an external project management system would be more appropriate. projects occur frequently or are dominant. A typical OBS would be as shown in Figure 4.3 4. The other example considers the establishment of high-level courses for a non-university client. and it can operate at any level between the extremes of pure functional and pure project organisational structures. The format adopted for any particular application will vary depending on the demands of the production system.3. 4/50 Edinburgh Business School Project Management . projects are large and involve a lot of resources. fast project response time is standard. Different combinations of structure offer different advantages and disadvantages.

but more likely the staffing would be arranged by senior managers. The university would therefore allocate a team that would probably be based on discussions at Senate level. any verbal and written commitments already given. Each faculty has its own aims and objectives and will therefore view the new course differently.Module 4 / Project Management Organisational Structures and Standards Court Senate Faculty Board (engineering) Faculty board (management) Faculty board (science) Department A Department B Business School Department C Department D Head Head Head Head Head Staff Staff Staff Staff Staff Staff Staff Staff Staff Staff Staff Staff Staff Staff Staff Figure 4. overall university policy. In turn. The team might be carefully selected by the project manager and the functional managers. teaching vs. there may be a number of alternative forms of sharing out the fee income. Selection would depend on a range of factors including: • • • • • • the priority of the new course within the existing departmental five-year plans. specialisations required on the new course. Service departments (such as the faculty of science) might not receive cash. research staff specialisation and priorities.21 Typical OBS for the existing functional unit The first thing to do after that be would to appoint a project manager and set up the project team. they might instead transfer the teaching time as full-time equivalents for overall university funding purposes. Project Management Edinburgh Business School 4/51 . the general availability and workload of staff.

This would operate at the university organisational boundary. For example. If only one faculty board was involved i. then the project sponsor could be appointed at a lower level. This arrangement establishes the basic organisational boundaries and also the basic authority layout within the system.22.e. and with the involvement of the various faculty boards. might be appointed. The Senate would also ask for a project sponsor to oversee the development of the new course. As soon as external consultants are involved. This is important as there are several faculty boards involved. and where the university does not retain this specialisation in house. Project sponsor Senate Faculty Board (engineering) Faculty board (management) Faculty board (science) Department B Business School Department C Department D Head Project manager Head Head Head Staff Project boundary Staff Staff Staff Faculty boundary Figure 4. possibly at Senate level.22 Basic layout and boundaries The next consideration involves the inclusion of external consultants within the OBS. External consultants might be needed in this sort of arrangement where part of the new course’s syllabus is highly technical and very specialised. The basic project team arrangement would therefore be something like that shown in Figure 4. there is a need for a formal exchange of contracts.Module 4 / Project Management Organisational Structures and Standards The project team will be identified probably at senate level. it might be agreed that Department A would provide one qualified engineer while the Business School would provide one management specialist. probably at faculty board level. all the contributing departments come from the same engineering or science faculty. The university would probably also establish an external interface section. 4/52 Edinburgh Business School Project Management . This level of discussion would probably not consider specifically named individuals but would concentrate on specialisations. The university would probably arrange this through its own legal services section. This is a high-level position and a named individual. There would be a need for a general communication link between these two sections.

Both the university legal services and client interface sections would probably report directly to some kind of university central administration. the university has set up a client interface section to act as the interface at the university boundary.Module 4 / Project Management Organisational Structures and Standards probably under the overall control of the project manager. drawn up by the university legal services section and developed and refined over time. This arrangement is shown in Figure 4. though legal services would not normally communicate directly with the external. This would typically involve duties such as answering queries from externals in connection with the tender documentation.23 Interface management In this arrangement. Project sponsor Senate Faculty Board (engineering) Faculty board (management) Faculty board (science) Department B Business School Department C Department D Head Head Head Head Project manager Staff Staff Staff Staff Project boundary University central administration University client interface University legal services Communications link Authority link Contractual link Faculty boundary External consultant Figure 4. The professional services contract is arranged through university legal services. They would probably be in communication with: Project Management Edinburgh Business School 4/53 . Such sections often have interesting names. such as ‘project interface management’ or whatever. The contract itself would probably be a professional services contract pro-forma. They would not report to the project manager or to any of the project or functional team members. apart from offering assistance during the conclusion of the contract.23.

the project manager (informal). each other (informal). In terms of authority. Formal communications are necessary with the external consultant because of the existence of the formal professional services contract between that consultant and the university. The internal formal links are necessary because the university interface and legal services sections are directly answerable to university central administration.24. there may be an internal project manager who acts as liaison officer and co-ordinator for the various external consultants. The client might be a large public body – a local authority.3.3 Example of an External Project Management Structure An external example along the same lines as that considered above might involve an external client in arranging for a series of high-level training courses that are to be delivered by a number of external consultants. This network of formal and informal communications is very important. the project sponsor has to have executive authority over the project manager and over the various functional managers. but beyond this they outsource and go to external educational consultants. They may also contract various contractors and suppliers for the provision of works or goods. The senate project sponsor has to be in regular contact with the project manager and the functional managers.Module 4 / Project Management Organisational Structures and Standards • • • • • university central administration (formal). Any changes or variations have to be formal as they have contractual implications. The informal communications system is just as important (if not more so). The project manager will probably have informal communication with the external consultant. The various stakeholders use it to keep up to date on what is happening in order to try and detect any problems as early as possible. particularly in order to try to detect any ‘rumblings’ that could indicate dissatisfaction about resourcing or the times being allowed by individual team members for their project and functional duties. In large organisations. 4. for instance. The client’s project manager co-ordinates the various external service 4/54 Edinburgh Business School Project Management . his or her first response will usually be to sound out the other functional managers in order to see whether the feeling is general. any formal variations or changes would have to go through either the interface section or legal services. the external consultant (formal). He or she in turn reports directly to senate level. Any lower reporting level would clearly be inappropriate. The arrangement just described is shown in diagram form in Figure 4. or one of the major public services such as the police or fire brigade. The various functional managers will probably communicate informally for the same reason. If one of them is concerned. The organisation itself may have its own training facilities to cover courses up to a certain level. the project sponsor (informal). Communications with the central administration and the external consultant have to be formal. The client’s legal services section sets up the contracts with the corresponding legal divisions or external legal advisers for the various external services providers.

Alternatively. less sophisticated clients might issue an outline description of what is required and then invite tenders with subsequent conclusion through a professional services contract that is relevant to the successful tenderer. together with provision for extras such as subsistence. levels of attainment required.or industry-specific. etc. Sometimes the choice of professional services contract is left to the successful tenderer. Because the system is external. This contract attempts to establish a set of generic conditions that apply to all Project Management Edinburgh Business School 4/55 . the service providers. The external service provider completes the form of tender and returns the entire document as his or her tender. These can be substantial documents. It is common to find such documents with a form of tender as the last page. These could be sector. These typically describe the syllabus that is required. suppliers and others have to be formally engaged through contracts. Contracts with external contractors are likely to be standard forms. or they could be one of the new generation of generic standard forms such as the UK-based new engineering contract.24 Typical external arrangement provider project managers. contractors. External contractor External supplier ESP Legal services External service provider Organisational boundary External advisers External bodies (accreditation) ESP Project manager ESP Project manager ESP Legal services External service provider Organisational boundary ESP Legal services External service provider Organisational boundary Steering groups ESP: External service provider Communications link Authority link Contractual link Figure 4. travel and so on.Module 4 / Project Management Organisational Structures and Standards ESP Project manager Client project manager Client contracts and procurement Client body Organisational boundary. together with the total teaching hours involved. and they are often incorporated into a larger document so as to form the tender documentation for the teaching contract. They usually include a provision for the external service provider to insert a fee total or hourly rate. The external service providers will generally be engaged on pro-forma professional services agreements that have been developed by the client’s legal services section over a period of time.

It establishes the standards and areas of responsibility for project managers in all industrial sectors. These are as follows: • The APM Body of Knowledge. assembled Edinburgh Business School Project Management 4/56 .4. The Association for Project Management (APM) has a so-called Body of Knowledge (BoK) that is the UK equivalent of the US project management institute (PMI) model. how the standards interrelate. The client may also be in contact with other external advisers and steering groups. There are established national standards and international standards for project management. In most cases. The general level of control required is greater than for the internal equivalent.4 4. One only has to look at the range of postgraduate project management courses that are available in universities around the UK. being concerned only with planning and controlling the physical development of a project. They act as national and international benchmarks for those individuals and organisations that subscribe to the various project management professional bodies around the world. Some people see project management as being a purely ‘hard’ technical discipline. The answer to this range of perceptions is to look at the standards.Module 4 / Project Management Organisational Structures and Standards engineering applications from construction to offshore installations. True project management practice is to some extent anchored on these national and international standards. It is interdisciplinary and is applicable to all industries.1 Project Management Standards Introduction It is essential that any student of project management is fully aware of the main European and international standards that apply to project management practice. with or perhaps without any formal contractual links. there are three major standards that are used as the basis for professional project management practice. As such. This understanding is important because different people have different opinions and take a different view of what project management is and how it works. although it is important that anyone who is trying to develop an understanding of what project managers do is aware of: • • • what project management standards exist. Others see project management as being a largely ‘soft’ or people-based issue. it is a generic document. The external arrangement generally has fewer informal lines of communication and more formal ones. In the UK. Supply contracts are likely to be pro-forma agreements produced by the supply companies themselves. There is a very significant variation in the syllabi of these courses. ‘project management’ clearly means different things to different people. 4. it is not essential to develop a detailed knowledge of the exact content of these standards. Some would argue that project management should embrace a number of other disciplines such as risk management and value management. what the standards are meant to do.

This is not the case with other professions such as medicine and law. BoK project management is interdisciplinary in that the BoKs are generic documents. It is a form of generic framework that can be moved from project to project. • BS6079. it is very much based on information management and control. The most important single element within BS6079 is the strategic project plan (SPP). The various project management professional bodies and the BoKs are in turn regulated and co-ordinated by the international project management association (IPMA). The APM BoK must therefore be regarded as a national standard that is compatible with global project management standards. The various countries have therefore all developed similar BoKs. rather than being designed for use by specific sectors or industries. Strategic project plans will all become compatible and direct comparisons of performance will be possible. It is important to note that project management using the various BoKs is both international and interdisciplinary. BS6079 attempts to establish working guidelines for UK project management practice. BS6079 and the related ISO10006 are UK and EU benchmarks respectively for project management practice. As a methodology. The IPMA includes members from the various national project management associations. It is only suited to bureaucratic systems and is not intended as a methodology for ‘harder’ project management scenarios such as construction. The various sections of the standard are discussed in more detail below. This means that a UK and a US project manager adhering to the guidelines should work in similar ways and ‘speak the same language’. PRINCE2 is a stand alone methodology. where the codes of practice and professional requirements are very different. irrespective of location or industry. The idea is that. As such Edinburgh Business School • Project Management 4/57 . It is international in that the various professional bodies in each country have produced their own BoKs in line with IPMA guidelines. project managers will all set up projects in the same way using the same basic framework. by using this approach. The UK APM BoK is very similar to the US PMI BoK and to others around the world. Hence PRoject management IN a Controlled Environment (PRINCE). They set national and international standards for practice while still being heavily based on APM approaches. They are produced for general use in each country. providing the basic structural elements for building a project plan for each separate project. A US project manager working in agriculture will therefore work in similar ways and again ‘speak the same language’ as a UK project manager working in process engineering. This provides a structure for organising and monitoring any project. It was originally developed to standardise project management within an IT or ‘controlled environment’. It mirrors the corresponding BoKs produced in other countries. The document covers everything from project management theory to direct applications.Module 4 / Project Management Organisational Structures and Standards and published by the APM. PRINCE2.

but not both. for any given industry or profession. An organisation or company that is setting up a project management control system for the first time would structure it around either BS6079 or PRINCE2. International Project Management Association (IPMA) Association for Project Management (APM) Project Management Institute (PMI) Other national bodies Industry-specific models UK and International project management standards PRINCE2 UK Project management practice Generic benchmarks (BS6079. they are effectively not performing ‘project management’. there has been a recent proliferation of industry-specific responses. This concept is shown diagrammatically in Figure 4. where professional associations or industrial bodies have attempted to produce industry-specific adaptations of these generic standards. The hierarchy of standards for project management can be summarised as shown in Figure 4. and the industry-specific version. Numerous large UK organisations. This means that. 4/58 Edinburgh Business School Project Management . Project managers should work and perform within the defining parameters of the APM BoK. the national BS6079. have developed their own specific codes of practice and summaries of project management practice and application within their own organisations. no matter how useful and successful their efforts. Anyone who is involved in project management must at least be aware of what these standards are and how they work together. The IPMA control international standards while the various national professional bodies control standards in their own countries through their respective BoKs. such as BS6079 and PRINCE2. These generic and specific standards therefore represent a tripartite standards system. such as the British Broadcasting Corporation and British Telecom. ISO10006) Figure 4. If they do not.Module 4 / Project Management Organisational Structures and Standards PRINCE2 is really an alternative to BS6079.26. There are additional standards that address the details of practice. A project management system should therefore comprise a basic nucleus originating from the APM BoK and the APM standards of professional practice. there are effectively three standards that govern project management practice.25.25 Global project management standards systems In addition to these generic international documents. There is the international APM BoK.

and it has strong links with similar and equivalent project management associations around the world. APM Body of Knowledge and professional standards. The APM has established a body of knowledge that is intended to act as a standard for evaluation of project management expertise.26 Inputs in the form of standards to a new project management system 4. The APM Body of Knowledge (BoK) is split into several sections and subsections.2. Generic components BS6079 Organisation project management system PRINCE2 Companyspecific project management procedures Sectorspecific project management procedures Specific components Figure 4. each of which defines a different set or subset of essential project management skills. It is therefore an international body and is part of a larger global collection of project management bodies. the sub-areas of expertise within these primary areas and the individual components of each sub-area.2 The APM and the APM Body of Knowledge Introduction The APM is the professional body for project management in the UK.4. It is also used as a selfassessment tool to enable project managers to measure their own professional competence when applying for different levels of membership.4. The idea is that the Body of Knowledge defines the four primary areas of expertise required of a certificated project manager.Module 4 / Project Management Organisational Structures and Standards This should then be extended to embrace the formal procedures contained in either BS6079 or PRINCE2.1 Project Management Edinburgh Business School 4/59 . It should then be further extended to include sectoror company-specific aspects. Other professional institutions have recognised the growth of project management and have made varied attempts to include it as an optional specialisation 4. It is part of the international project management association (IPMA).

The four effectively define those areas where a project manager must have a detailed knowledge and understanding of the theory and practical application. The AMP BoK is a standard document that runs in conjunction with practice standards such as BS6079 and also in conjunction with sector. over and above the professional standards that are published and developed by the professional associations and institutions. irrespective of individual discipline. 4. However. Organisation and people. • • • The objective of this section is to develop an understanding of what the APM BoK is and how the association fits into the global system of project management professional standards. General management. to champion interest representation: to represent the interests of UK project managers in all sections of industry.or companyspecific standards. 1 2 3 4 Project management. Techniques and procedures. to establish standardisation of qualifications: to standardise the academic and professional qualifications of certificated project managers. to establish practice and procedures for training: to establish and maintain ongoing training programmes suitable for project managers of all levels of experience and competence. 4/60 Edinburgh Business School Project Management . Copies of the UK APM Body of Knowledge (BoK) are available from: The Association for Project Management 85 Oxford Road High Wycombe Buckinghamshire.Module 4 / Project Management Organisational Structures and Standards within their membership structure. The stated aims and objectives of the APM are: • • • to act as first point of contact: to be the national authority on project management through the Internet. commerce and the arts.2. the APM remains the one generic professional body for project management.2 The APM Body of Knowledge Profile The APM BoK lists four primary areas in which a qualified project manager must have relevant academic and experiential ability. The four areas are described next in a little more detail. It also gives some idea of the main standards that apply to project management practice.4. to develop a functioning national branch network: to establish and maintain a national branch network to facilitate participation by all members throughout the UK. to lead the development of professionalism: to further the professional development of practising project managers in the UK and western Europe. HP11 2DX UK.

In addition. but the project manager has to know what a contract is and how he or she can use and enforce it as part of the implementation process. The UK and US bodies of knowledge are similar and include the same general areas. Techniques and procedures include such areas as scheduling and estimating. Project management includes specific aspects such as an understanding of project life cycles. The parent organisational structure acts as the immediate project environment and changes in this directly affect the project. Organisation and people. These functions are normally covered by appropriate specialists. This is particularly important in the case of external project management where there are likely to be a range of contracts in place. communication and team building. Edinburgh Business School • • • Project Management 4/61 . Organisation and people includes leadership. In particular a project manager should be aware of the latest approaches to planning and control. together with an understanding of the various control and monitoring procedures that are required in order to ensure that plans are successfully implemented. the organisation itself operates within the external environment. An internal project management system operates within its parent’s organisational structure. For example it is not possible to effectively plan and manage a project without a knowledge of contracts. General management. It is clearly important that a project manager has adequate knowledge and experiential skills in these areas. The project environment is one example. project strategy and the project environment. The APM BoK makes it clear that a project manager must have an understanding of a wide range of issues that relate to project management practice. Techniques and procedures. • Project management. Changes both within the organisation and within the organisational environment can directly impact on the project. For example a project manager has to have an understanding of basic contract law so that he or she appreciates what actions are or are not permissible under the terms and conditions of the various contracts that are likely to be encountered. Leadership style has to evolve as the project develops and hence the best leadership response to change will also vary over time. The project does not exist in isolation. These are the traditional ‘hard’ areas of project management. It is not sufficient for a project manager to have well developed abilities in some of these areas and not in others. A project manager should have a detailed understanding of the various planning and estimating techniques that can be used on projects. especially those approaches (such as earned value) that link to one or more success criteria variables. General management includes finance and law. but a project manager should have a basic understanding of the procedures and approaches involved. The optimal leadership style varies in relation to the nature of the project and also in relation to the stages of the project life cycle. In order to operate successfully a project manager must have an understanding of areas such as leadership. It is possible to appoint external specialists for most aspects of contractual control.Module 4 / Project Management Organisational Structures and Standards Other national project management bodies such as the US Project Management Institute (PMI) have published corresponding bodies of knowledge that are relevant to practice in their own countries.

design options and alternative cost scenarios. Those with a strong interest in developing their project management skills are recommended to obtain a copy of the APM BoK and familiarise themselves with it. the International Project Management Association (IPMA) is an international organisation linking all the various national project management bodies together. The US PMI BoK is currently available as a downloadable file on the internet. Some areas of professional practice tend to centre on a specific part (or window) of the project life cycle.4. Many people talk about ‘project management’ when in fact they mean something else. and is one of three levels of standards that are required for an effective project management system. 4/62 Edinburgh Business School Project Management . It stresses both the range of subject areas required and also the importance of expertise across the entire life cycle of the project. The engineering consultant is generally not so concerned with the long-term use of the system. The APM BoK also includes areas that are relatively new to UK practice. It establishes examination syllabi for project management professionals and it sets out the key project management competencies in the APM Body of Knowledge. It is one of a series of similar bodies of knowledge issued by the various professional associations around the world. One such area is value management. It is common to find that the initial interpretations of the client brief. can be improved to deliver greater value. available materials. It establishes national guidelines and standards for the profession. An engineering consultant who is commissioned to design and deliver a fully operating air conditioning plant for a new building is primarily concerned with the design of the system and making sure that the finished plant works correctly. In the UK. The APM BoK stresses that a project manager should be concerned both with the pre-design phases where the performance of the system is specified. but which nevertheless fall within the domain of professional project management practice. ♦ Time Out Think about it: project management standards. or specifications that have been made by designers. This is a discipline that is already in widespread use in the US. By employing value management tools and techniques a project manager is often able to suggest early design changes so that more effective use is made of space. This long-term involvement includes post-installation review and long-term costs in use. the Association for Project Management (APM) is the generic professional body for project management practice in all industries. 4.Module 4 / Project Management Organisational Structures and Standards The APM BoK attempts to encompass the full range of project management areas of expertise. Value management is concerned with looking in detail at early design proposals in relation to the aims and objectives of the client. It is very important to appreciate that there is a recognised international body for the establishment and maintenance of project management standards and professional practice. but is still very much in the early stages of adoption in Europe. nor with any problems that might be encountered during the long-term use of the system. and also with the long-term use and eventual decommissioning of the system.2. This body.3 Summary The APM Body of Knowledge is a UK national standard for project management practice.

There are several different standard methods of measurement across the EU. so not only the measurement but also the information presentation can differ from project to project. or even of quality control. both between industries and within the same industries. Specific industries have responded to some extent by introducing their own standards for project management practice.3 BS6079 Introduction BS6079 is the British Standard Guide to Project Management. It would be useful to be able to measure how well a design team has performed relative to the fees that have been paid. This has obvious drawbacks. 4. In addition. at present. Cost planning and control is one example. and cost data collection and reporting varies widely from contract to contract and from practice to practice. and even members of the same design professions may have different approaches to designing and recording information. The document was developed in consultation with academics and industrialists and was designed as an attempt to consolidate a series of different industrial approaches to project management. recording. Questions: • Why is it important to have international generic standards in project management? • What is the significance and potential significance of an international generic standard? • How does this international generic approach to standards compare to the approaches that exist in other disciplines such as medicine or law? ♦ 4. there is no standard for presenting drawing information. It makes it very difficult for anyone to evaluate project performance and individual project team performance because there are so many unknown variables.3. projects can be set up and run in any form that the individual manager responsible considers to be the best. Nearly all large organisations now have their own project management manual which specifically applies project management theory and practice to that particular organisation.4. The philosophy of the SPP is based on standardisation. In addition. cost planning and control.4. At present. this is not possible because of the levels of information that are in the system and the difficulties involved in being able to isolate individual performance characteristics when there are so few constants. It establishes guidelines and procedures for project management practice in the UK. other standards are being put in place. There is no standard requirement for document preparation. In the UK. British Standard (BS) 6079 is the first attempt at the establishment of a UK guideline for professional project management practice.Module 4 / Project Management Organisational Structures and Standards Increasingly. there are no standard approaches to the establishment or format of cost plans. One of the most important single sections in the whole document is the standard strategic project plan (SPP) to BS6079. Projects are set up and executed in numerous ways. Each organisation has its own procedures.1 Project Management Edinburgh Business School 4/63 .

As a sub-objective. successful health and safety performance may be equally as important as (for example) finishing the project on time. It is important that these are clearly defined at the outset so that everybody involved with the project has clear terms of reference to work to. This section may also contain details on sub-objectives. In order to achieve security control each member of the project team may be allocated a security level code. This may involve the establishment of identifiers for the main project team members and also some kind of security system for controlling access to project information.2 Generic SPP to BS6079 The main elements of the generic SPP defined with BS6079 are as follows: • Preliminaries. These sub-objectives may run in parallel with the project objectives and carry equal importance but may require different planning and control techniques. The objectives may relate to time. This is important on large and complex projects where a configuration management system (see Module 7) is to be used. Health and safety performance can be a critical success Edinburgh Business School Project Management • 4/64 . description of the project. It runs in conjunction with the standards that are established by the professional associations and institutions and also in conjunction with sector. The preliminaries section typically establishes some kind of configuration control reference. Eventually.4. An agricultural project would therefore be set up in exactly the same way as a construction project. The BS6079 SPP is a standard document that operates at one level within the project management system. The main sections of the SPP to BS6079 are considered now. Different codes then allow access to different information levels within the system. The preliminaries effectively set the project in context and name the main people who are involved in planning and executing it. Some information such as estimating strategy and cost accounting data may be confidential and there will be a corresponding need to restrict access. This typically contains such elements as a title page.or company-specific standards. quality and a range of other objectives. cost. BS6079 may become a European standard so that agricultural projects and construction projects would be set up in exactly the same way right across the EU.Module 4 / Project Management Organisational Structures and Standards BS6079 attempts to address this problem. The standard establishes a generic project plan that is applied to all projects. An example is health and safety objectives. Most SPPs contain a section where the project aims and objectives are clearly stated. at least in part. 4. Most SPPs have an extensive preliminary section. Project aims and objectives. a contents list and an introduction.3. As the project develops various people will contribute information and there will be a requirement for more people to access some of the information that has been input to the system. The objective of this section is to develop a basic understanding of what the BS6079 SPP is and how it works.

It is becoming commonplace to find sub-objectives relating to operating costs and recycling. • Subject specific sections. the project manager providing information on communications and other co-ordination systems. Companies are also increasingly considering environmental awareness performance. As the project progresses and the designs and plans are implemented the SPP is updated so that it creates an update record and (if required) an audit trail for later use. Some projects are heavily affected by change. The subject specific headings cover all aspects of the project management process from project policy to certification procedure. In an external project management system the project manager assembles the SPP using information provided by the various project specialists and consultants. the client providing information on aims and objectives. Edinburgh Business School 4/65 . Typical contributors to the SPP are: • • • • • • Project Management the design engineers providing drawings and schedules. some of which is imposed and some of which is voluntarily included by the client. The idea of this is that all SPPs should be laid out in the same way and each subjectspecific heading should address the same issues and present information in the same format. There is usually a section that acts as a project history or diary. It is normal practice to record these variations and maintain a record of the projected effect on the final completion date and cost of the project. BS6079 gives a proposed numbering system for these and details the information that should be presented under each heading. The remainder of the SPP usually comprises a series of subject specific sections. the legal consultants providing copies of the various forms of contract. Specific sections are normally established for scheduling and cost control. In practice the SPP is developed over time during the planning process. The project manager uses this section to record all important communications and events that occur during the course of the project. It acts as both a record document and as a benchmark for the project as originally developed and planned. It is also an important repository of information for subsequent use in the post-project review.Module 4 / Project Management Organisational Structures and Standards factor on some projects and there can be heavy statutory penalties for unsatisfactory performance or non-compliance. external statutory bodies. These sections contain both the original plans and updates to allow for changes that have occurred since the original plans were established. In some cases a separate section is maintained for the effects of change. The SPP contains all relevant project information. This section serves as an audit trail should the need arise. Some private project management organisations already use SPP pro forma documents and adapt these for use on each project they undertake. the cost consultants providing estimates and cost plans.

Each process is then defined in 4/66 Edinburgh Business School Project Management . Clients are increasingly using SPPs as a basis for competitive bids for external project management services.4.4 PRINCE2 Introduction PRINCE2 (PRoject management IN a Controlled Environment.4.3 Summary BS6079 is another form of national standard for project management practice.4. Since 1989 it has become widely used and has been applied with success to some non-IT applications.4. Perhaps the most important advantage is that each prospective project management consultant is using the same detailed information as the basis for his or her bid. The development of PRINCE2 involved a consortium of project management consultants working under contract for the CCTA. This is a generic standard format for the presentation and recording of any strategic project plan for major project.Module 4 / Project Management Organisational Structures and Standards The SPP is usually assembled to a specific timetable. version 2) is an alternative to BS6079. The SPP includes all necessary project design and specification information by the time that the project is initiated or put out to tender. It is common practice for the client to commission an SPP project manager who manages the development of the initial SPP up to baseline stage. Students who are likely to find themselves in a project management role at some stage in their careers are recommended to obtain a copy of BS6079 and familiarise themselves with the various suggested SPP subject headings. The SPP at this stage includes all the project information an external project manager will require in order to be able to bid for the project’s professional services contract. 4. It acts as a benchmark. project managers can establish all projects according to the same basic format. At that time.4. it was intended to be the UK government standard for IT project management. It is a project management methodology that covers the organisation. PRINCE was reviewed extensively in 1995 and PRINCE2 was introduced in 1996.4. Using an SPP as a template or framework. 4. PRINCE was first developed by the Central Computer Telecommunications Agency (CCTA) in 1989.2 PRINCE2 Methodology PRINCE2 is based on a process model of a project. The most important single standard document within BS6079 is the strategic project plan (SPP). The standard is UK specific but the approach adopted is generic and could be adapted for use in most countries. management and control of projects.1 4. particularly in relation to standardising procedures and documentation.3. 4. This approach has a number of advantages over traditional selection processes. It was validated by more than 150 public and private-sector organisations and specialists. This involves breaking the project down into component processes. This generic capability applies both internationally and across disciplines.

it is regularly reviewed throughout the course of the project life cycle. it ensures that the timing of involvement of management and stakeholders is optimised during the life cycle of the project. with each component evaluated and analysed separately. This describes the organisation’s underlying motivation and commitment to the project. it identifies and makes use of flexible decision points. It is therefore based on the life cycle of the project. each handled separately. This allows more efficient use of resources and more accurate measuring of progress. The main advantages offered by a PRINCE2 approach are that: • • • • • • it offers a standardised project structure with a clear start. it allows regular and detailed reviews of actual progress against the business case. it identifies and allows automatic control of any deviations from the project plan. Senior management Directing the project Start up a project Initiating Controlling a state Managing stage boundary Closing a project Project mandate Managing product delivery Planning Figure 4. middle and end. Edinburgh Business School Project Management 4/67 .Module 4 / Project Management Organisational Structures and Standards terms of its key inputs and outputs and in terms of the aims and objectives for each process.27 PRINCE2 process model A PRINCE2 project is driven by the project business case. The process model (see Figure 4. The business case is not a static document. it allows regular and detailed reviews of actual progress against planned progress.27) demonstrates how a project can be divided up into manageable elements.

Learning Summary Organisational Theory and Structures • The design of the organisational structure is important because the most important single element in making a project a success is the people that work in the project team.3 Summary PRINCE2 is a methodology for bureaucratic and IT-driven projects. the relevant national standards institutes have also produced project management codes of practice and national standards.5 Summary This section has highlighted some of the primary standards that apply to project management practice. It is widely used in office-based applications. Increasingly the national bodies are also producing standard conditions of engagement and other standardised procedures for project management practice. At the highest level there is the International Project Management Association (IPMA) which acts as the global body for project management practice. 4. Edinburgh Business School Project Management 4/68 . sectors and companies have produced their own codes of practice and guides to project management practice. It is an alternative to BS6079 rather than a rival.Module 4 / Project Management Organisational Structures and Standards • it encourages and develops good communication channels between the project. such as the use of a strategic project plan (SPP) for every project. These tend to be more industry specific and related to the operational processes of the companies concerned. the level to which standards are used in project management depends on individual company policies and on the level of adoption of standards by professional practices. One example is BS 6079 as produced by the British Standards Institute.4. This contains important practice guides and recommendations. people make projects succeed or fail. as the discipline it is international and generic. In some countries. The next level comprises the various national bodies for project management practice in individual countries such as the UK APM and the US PMI. There is a strong case for the adoption of standards whenever possible in project management practice. It is aimed at a different client base and clearly attempts to achieve different things. individual industries.4.4. In practice. At the lowest level. Project management is an international generic discipline and it is important that national and international standards are observed as far as possible. These bodies have established bodies of knowledge in an attempt to establish and standardise the areas of expertise that are required by practitioners in the respective countries. the project manager and the rest of the organisation. 4. In most cases.

Functional systems allow individual experts to be effectively used on a number of projects. Functional systems allow specialist knowledge to be easily shared within the function and effectively utilised by the project team. and is therefore often avoided. The end result is a series of operational islands that work relatively independently. Edinburgh Business School Project Management 4/69 . Project organisations often have total freedom within the limits of final accountability. This assists in the development of continuity in the sense that expertise. Staff are primarily employed to perform a functional job but may be temporarily assigned to a project that requires their particular expertise.Module 4 / Project Management Organisational Structures and Standards • • • • • • • • • • • • • • Most organisations naturally tend to split themselves up into functional units. Functional boundaries run vertically. full project responsibility can be difficult to assign. The function will tend to have more power than the project. In functional systems. Whilst projects may generate a degree of satisfaction. Pure project systems may be a ‘satellite’ of a parent that has been set up specifically to deliver projects and could be linked to the parent company by a reporting system. they can be employed on different projects with relative ease. Authority boundaries run horizontally. Functional systems offer good flexibility in the use of people. particularly in cross-functional projects. Project systems can operate as pure projects within a functional organisation. In functional systems. Each functional unit has a functional specialisation and there is often relatively little communication between the functional units. A functional department tends to be process-oriented rather than goaloriented. procedures and administration are maintained within the function despite any personnel changes that may occur. People working within this type of structure may find it difficult to adapt to the needs of the project environment. These run horizontally through the system and identify power and status bands. Organisations tend to have authority levels. others have functional support assigned to them by their parent company. The department will need to continue to operate as normal and any individual assigned to a project will probably be an important part of the department’s operations. Project issues directly within the interest of the functional discipline would tend to be dealt with much more diligently than those from other areas. which a project must be in order to be successful. the functional department probably offers more prospect of promotion. Project management offers a solution by forming horizontal project teams that run through the operational islands. A pure project would comprise a group of specialists who were drawn from functional units but allocated sole (as opposed to shared) responsibility for working on the project. there is a tendency to sub-optimise the project. If there is a broad base of expertise within a functional department. The function provides the most secure career path for an individual.

to him or her. there is understandable concern about their positions after the project has finished. In pure project systems. the project manager not only has full authority over the project but has a dedicated project team working under. it is easy to see the project as a whole. but absence from the functional department for extended periods could result in their losing touch with developments within the functional disciplines. They are not responsible to a functional department. which can result in distinct competitive advantages being built up within the organisation. In pure project systems. Deadlines for pure projects often foster administrative corner-cutting. Pure project systems that are running a number of consecutive projects may duplicate a considerable amount of work in many areas of the project. The organisational structure is simple. When staff are employed solely within a project team. In effect. the project manager is the managing director of the business that is the project. In pure project systems. There is a Edinburgh Business School Project Management 4/70 . the project team can develop a strong sense of identity and motivation. This allows the project organisation to build specific skills and expertise in these areas. Staffing costs in pure project systems can be very high because each project has full-time functional capability whether required or not. Pure project systems tend to have shorter and clearer communication linkages as there is no functional structure to navigate. In pure project systems. The project manager reports directly to someone in the organisation’s senior management. These skills will not be tempered by functional duties. Pure project staff may become highly competent project workers. authority is centralised and the project team can therefore make quick decisions and react rapidly to changing circumstances. the project team members report only to the project manager. The functional department may be better positioned to keep up to date with developments. It becomes very difficult to maintain standard procedures across project teams who are given complete freedom to run the project. there might be a tendency to stockpile resources for future use. Pure project systems offer the advantage that each member of the project team only has one boss.Module 4 / Project Management Organisational Structures and Standards • • • • • • • • • • • • • • • In pure project systems. In pure project systems. commitment to the project is often high. and reporting only. and this unity of command ensures that he or she never has to choose between the functional boss and the project boss. Pure project systems can be particularly effective when there are a number of pure projects operating at any one time within an organisation. Pure project systems can lead to a ‘them-and-us’ mentality and can foster groupthink and political infighting. flexible and easy to understand and administer. and policies and procedures can be left by the wayside. with less of a tendency to focus on sub-systems thus losing touch with the whole project.

in a police crime investigation that uses specialists from a number of individual functional specialisations. full-time basis. shorter-term projects such as those carried out by advertising agencies. Edinburgh Business School Project Management 4/71 . This is common on smaller. Projects undertaken in this environment could be undertaken within the most appropriate functional unit. depending upon the nature of the projects undertaken.Module 4 / Project Management Organisational Structures and Standards • • • • • • • • • • • • • • tendency towards the end of a project for important team members to leave to take up longer-term. Internal project management relies on accurate time and cost-centre recharging between functional and project systems. more secure positions. In matrix systems generally. they will tend to be projects to improve systems. A matrix system attempts to combine the benefits of the functional organisation with those of the pure project organisation. they could run across different functional units – as for example. whilst at the same time eliminating the disadvantages. Matrix structures may be very strong or very weak. who is there to act as a moderator on the project manager and the functional manager(s). This can put the project in jeopardy and is often countered by the award of a project completion bonus paid to those team members still there at the end. Alternatively. For example. the project manager) responsible for its success. Internal project management systems require a project sponsor. methods or products and to be internal rather than external projects for the benefit of the organisation’s effectiveness. It involves a project system operating within the boundary of a larger functional system. Strong matrix structures veer towards pure project structures and tend to be used on large projects where employees are assigned to projects on a long-term. Weak structures exist where the only full-time employee on a project is the project manager and everyone else used on the project is commissioned on a short-term basis. procedures. they are highly unlikely to be the reason for its existence. Internal project management generates interfaces. Interface management is the management of the processes of communication and action across and within the various organisational interfaces. or anywhere in between. They are likely to be developmental in nature. Although projects carried out in this environment may be strategically important to the organisation. Interfaces are points where organisational linkages cross either internal or external project. a packaging redesign or product launch would be the responsibility of the different sections of the marketing department.e. The matrix structure is the pure project structure overlaid on the functional divisions of a parent organisation. the project is the point of focus and has a single person (i. function or authority boundaries. Internal or non-executive project management is an example of a matrix system.

a matrix structure enables better balancing of resources to meet the demands of the organisation as well as the demands of each of the projects.Module 4 / Project Management Organisational Structures and Standards • • • • • • • • • • • • • • • The matrix system also means that the project has reasonable access to the total capability of each of the functional areas and is well placed to draw on the services of any of the specialists across all the organisation’s departments. There are many forms that the structure of an organisation may take to support a project. Without this. This benefits project team members when they move from project to project and do not have to familiarise themselves with new ways of doing things on every project. There is no way around this and the split in loyalty between the project and the department. it could also Edinburgh Business School Project Management 4/72 . the project will suffer. In the matrix structure. The matrix structure demands project managers with strong diplomacy and negotiating skills. is the single biggest disadvantage of the matrix structure and almost always affects the project in some way. The matrix structure offers total flexibility between pure project and pure functional organisation and can be adapted to suit any project. An external project management system could comprise only internal people but be managed by an external project management consultant. The project within the matrix structure is flexible and can respond rapidly to the demands of the client in a way that the functional organisation cannot. There is a power-balancing issue between the project and the functional department and when the balance is delicate. Close links to the functional departments ensure that organisational policy. Project management structures are not limited to those that can operate within existing functional structures. Where there are several projects running simultaneously. Pure functional and pure project organisations can also coexist as components of a hybrid structure. there is little anxiety or insecurity as the end of the project nears. Commonly. as in the case of a power struggle between project manager and functional head. procedures and systems are well adhered to and are consistent across all projects. because team members are generally assured of their place back in the functional department. Project completion in strong matrix structures is difficult. and project team members may suffer a sense of loss at the prospect. which results from this situation. they may quickly find themselves at odds with the heads of the functional departments. Killing off the project identity built up during the project life cycle is often resisted. project team members have two bosses. Project management is a complex task in general and the matrix structure adds a new dimension to that complexity. Even though strong matrix structures support a truly committed project team. a hybrid will be the most suitable option given the existing structure and working procedures.

In an external system. different consultants act as agents on behalf of a client. similarly. An external project manager. External project management structures are sometimes referred to as ‘executive’ project management structures. they need not necessarily follow the same routes through the organisational structure.Module 4 / Project Management Organisational Structures and Standards • • • • • • • • • • • comprise a mixture of internal people and external consultants. could work for a specialist project management consultancy. and the degree to which they make up a project team. communication links might follow the same paths as contractual and authority links. including control and co-ordination of the design team. depends upon the degree of surrogacy involved. by the International Project Management Association (IPMA). in turn. External Project Management tends to be more applicable to smaller organisations. and could offer overall project management services. Authority links define the power and control structure that operates within the system. or it could comprise only external consultants. Again. Authority links are not the same as contractual links. External project management systems are susceptible to the problems of differentiation and sentience. as part of the management package. these clients may have commissioned similar works before and know some of the problems that can occur. Other clients might want to retain more of a grip on the evolution of the project. Communication links define the lines of communication in the system. The Association for Project Management (APM) is the professional body for project management practice in the UK. External project management systems tend to have a much wider range of formal contractual arrangements that internal systems. in such cases the client wants minimum involvement and only wishes to see the end criteria met with minimum interim involvement. Some or all of the consultants could work for different organisations. some or all of whom have been appointed by the consultant project manager. The extent to which external people or consultants are involved. Project Management Standards • Project management standards are governed by national professional bodies. The various national professional bodies are governed. It is a far more flexible approach and is much more suited to organisations with variable workloads. but they may also follow different paths. External project management systems also tend to be subject to much more open and competitive fee structures than internal systems. External systems tend to have much more developed organisational linkages than any of the internal forms. Edinburgh Business School • Project Management 4/73 . Some clients want to hire a consultant project manager who will take over everything and run the whole show in return for a fee. all of whom are managed by the consultant project manager.

In addition to these generic international documents.7 Internal project management systems offer good staff flexibility. It establishes the standards and areas of responsibility for project managers in all industrial sectors. where professional associations or industrial bodies have attempted to produce industry-specific responses to generic standards. T or F? 4.3 All projects can operate successfully within existing organisations. There is the internationally-based APM BoK.Module 4 / Project Management Organisational Structures and Standards • • • • • • • The various national professional bodies have established benchmarks for project management practice. Anyone who is involved in project management must at least be aware of what these standards are and how they work together. T or F? 4. Review Questions True/False Questions Organisational Theory and Structures 4. T or F? 4/74 Edinburgh Business School Project Management . such as the British Broadcasting Corporation and British Telecom.4 Pure project systems are based on randomised project groups working towards undefined targets. there has been a recent proliferation of industry-specific responses. It is international and is applicable to all industries. Once such example is the Association for Project Management Body of Knowledge. the other main project management benchmark is BS6079.2 The single most important component in whether or not a project succeeds is people. T or F? 4. T or F? 4. have developed within their own organisations their own specific codes of practice and summaries of project management practice and application. The first international code for some aspects of project management has appeared as ISO10006. there are effectively three standards that govern project management practice in the UK.1 The main reason that project management has evolved is because projects have become more complex. The APM BoK is the UK equivalent of the US (PMI) model. This is often abbreviated to the APM BoK. T or F? 4. In the UK. T or F? 4. Numerous large UK organisations.5 Pure project systems generally have simpler lines of communication than matrix structures. and the industryspecific version. the national BS6079.6 Pure project systems are more prone to groupthink. For any given industry or profession.

11 Interfaces are points where organisational linkages cross boundaries. T or F? 4. T or F? 4. T or F? 4. T or F? 4.22 ISO9000 is a European standard for project management. T or F? 4.12 Functional boundaries tend to run vertically while authority boundaries tend to run horizontally. Across functional units.20 Contractual links always follow authority links. Project Management Edinburgh Business School 4/75 . T or F? Project Management Standards 4.17 A hybrid structure is basically a combination of pure project and pure functional structures. Partially within and outside functional units. T or F? 4. T or F? 4.Module 4 / Project Management Organisational Structures and Standards 4. Only outside functional units.9 In internal systems.19 Authority links always follow contractual links. T or F? 4. T or F? Multiple Choice Questions Organisational Theory and Structures 4. T or F? 4.14 There is generally more conflict in a matrix structure.16 A project within an internal project management structure is flexible and can respond rapidly to the demands of the client in a way a pure functional structure cannot. T or F? 4. the project manager and the functional manager generally have similar authority.8 In internal systems. the project will tend to have a higher priority than the function.21 There are no international codes of practice for project management.13 The project sponsor has executive authority over the project manager and functional manager.10 There is a low potential for conflict in internal project management systems. T or F? 4.23 At which of the following levels can projects operate? A B C D Only within functional units.15 A project within a matrix structure is flexible and can respond rapidly to the demands of the client in a way a pure functional structure cannot. T or F? 4.18 External project management involves people who all come from outside the main organisation. T or F? 4.

Matrix. Matrix. equal. Pure project. Hybrid. Hybrid. 4/76 Edinburgh Business School Project Management . 4.25 A college department with no research and all teaching would be an example of which structure? A B C D Pure functional. Hybrid. 4. Matrix. the authority of the project manager in relation to the authority of the functional manager is likely to be A B C greater. Pure project. 4.29 In a matrix system.30 In a matrix system. Pure project. Matrix. Hybrid. Pure project. lesser. 4.27 Flexibility of human resources is generally best achieved in which structure? A B C D Pure functional. the authority of the project sponsor in relation to the authority of the project manager and functional manager is likely to be A B C greater.24 Research associates working on a research contract within an existing department would be an example of which structure? A B C D Pure functional.28 Individual team-member motivation is likely to be greatest in which structure? A B C D Pure functional. lesser. equal. 4. Hybrid. 4.26 A team of scientists working only on developing a new vaccine would be an example of which structure? A B C D Pure functional. Matrix.Module 4 / Project Management Organisational Structures and Standards 4. Pure project.

in a matrix system. less complex. Over 5%.5%. functional and operational boundaries.5 – 1. Submission. fees are based on which of the following? A B C D Published scales.Module 4 / Project Management Organisational Structures and Standards 4. operational boundaries. 4. Project Management Edinburgh Business School 4/77 .0 – 5.37 Typical external consultancy project management fees for managing a £3 million housing association refurbishment project would be which of the following? A B C D 0. neutral. Re-measurement on completion. 4. Neutral.32 In terms of operational efficiency.0%. which of the following will be the most important interactive skill of a project manager? A B C Negotiation skills.34 In general. monthly. Bad. operational or organisational islands represent areas that are separated by A B C D functional boundaries. Negotiated rates.0%. 1. neither. operational islands are which of the following? A B C Good. 4. annually. 4.31 In a matrix system.33 In general. 0. Aggression. at pre-agreed stages. 4.35 Fee structures are central to the establishment of most external project management systems. 4. Fair and reasonable rates.36 Design fees are generally payable A B C D weekly. a matrix system tends to make the project management function A B C more complex. Generally.1 – 0.

These two elements have impacted at more or less the same time. a project management charter. Project Management Standards 4.Module 4 / Project Management Organisational Structures and Standards 4. PMS. PMI. advisory authority. APM. default terms. This means that it has A B C D regulatory authority. These use staff from department X plus staff from other departments. 4.39 Which of the following is the international regulatory body for global project management services? A B C D IPMA. statutory authority. The department realises that it has to address this problem. Jane works for department X. a body of knowledge. the head of department has decided to launch a series of new multidisciplinary courses. no authority. implied terms.40 The various project management professional bodies structure their professional standards around A B C D a code of practice. resulting in a net fall in income for the department of around 30 per cent in the current year.38 Standard forms of contract contain mainly A B C D direct terms. assumed terms. The head of department has asked Jane to set up a new organisational structure so that the new multidisciplinary courses can be effectively managed. 4. a national standard. The main reason for the recent reversal of fortune for the department has been a sudden fall in student numbers and a simultaneous fall in research income. Mini-Case Study Background Jane is an academic member of staff at a leading UK technological university. to teach jointly on multidisciplinary courses. In an attempt to work more efficiently.41 BS6079 is a British standard. This a department was formerly successful but recently has hit on hard times. Jane is not 4/78 Edinburgh Business School Project Management . and even staff from other universities.

discuss the main internal/external interfaces which Jane would have to consider. In some cases Jane could hire members of staff from other universities to teach on the course. she is half way through a distance learning MBA at the Edinburgh Business School and she has already completed the Project Management course. She therefore feels confident that she can plan and execute the multidisciplinary course programme effectively. Members of staff from the same university could be used at minimal cost since. The first new course to go on line is to involve staff from department X and staff from other departments within the same university. In this case she would have to hire them as consultants. Questions: 1 Consider the primary factors which Jane would have to take into account when deciding whether or not to proceed with the consultants. Project Management Edinburgh Business School 4/79 . luckily. in most cases. 2 If the eventual structure does contain external consultants.Module 4 / Project Management Organisational Structures and Standards a professional project manager but. the teaching would be financed by the transfer of full time equivalent teaching loads to the departments providing the service teaching.

.

4.2 5.2 5.1.3 5.4.5.4 5.6.6.1 5.3 5.6.3 5.4.2 5.1.2.6 5.1 5.5 5.1 5.1 5.1 5.3 5.1.4 5.2 5.6.5 5.3.5.4 5.3 5.3 5.6.1 5.1 5.3.1.4.5.4 5.3.6 The Concept of Project Time Planning and Control Introduction Aims and Objectives of the Planning Process Project Time Planning and Control and the Generic Project Plan Project Time Planning and the Project Life Cycle The Process of Project Time Planning Factors Affecting the Time Planning Process The Planning Process Project Replanning Introduction Crash Analysis Crash Example Trade-off Analysis Introduction Methodology for Trade-off Analysis Trade-off Classification Example Trade-off Curves Resource Scheduling Introduction Resource Aggregation Resource Utilisation Resource Levelling (or Smoothing) Project Planning Software Introduction Advantages of Computer-based Project Planning and Control Disadvantages of Computer-Based Project Planning and Control General Factors for Consideration General Features of Project Planning and Control Software Systems Common Commercial Project Planning and Control Software 5/2 5/2 5/4 5/6 5/7 5/10 5/10 5/17 5/60 5/60 5/61 5/67 5/72 5/72 5/74 5/78 5/81 5/85 5/85 5/86 5/89 5/89 5/95 5/95 5/96 5/97 5/98 5/100 5/101 5/104 5/109 5/117 Learning Summary Review Questions Mini-Case Study Project Management Edinburgh Business School 5/1 .2 5.Module 5 Project Time Planning and Control Contents 5.2 5.2 5.2.4 5.5.6.

Module 5 / Project Time Planning and Control Learning Objectives The objective of this module is to develop an understanding of the time planning process. The position of the project at any particular time can usually be shown as a compromise among the three. Most projects can define success or failure in terms of these three variables. Models are then generated to ascertain likely completion dates for individual and collective activities. Point B1 represents the desired location.1. Time. cost and quality planning and control are intrinsically linked and must be considered collectively and as part of the project management three-way continuum. further models may need to be generated to allow for replanning and change. Time planning will therefore be examined as one aspect of the overall. understand the basic sequence of works necessary to produce a precedence diagram. The shaded area represents the growing divergence between desired end point and actual end point. point A represents the present position of the project. advantages and disadvantages of CPM and PERT. or generic. Finally. appreciate the basic mechanics of Program Evaluation and Review Technique (PERT). The next stage is to link these components together in a logical progression. 5. appreciate the basic mechanics of scheduling using the critical path method (CPM).1. this has not taken into account the cost increases associated with the longer time scale (for example. Time planning and control cannot be considered in isolation. hence there is an intended move from A to the desired position B1. In Figure 5. generate and present trade-off scenarios. as shown in Figure 5. Point B represents the anticipated location after a certain amount of time if no intervention takes place.1.1 5.1 The Concept of Project Time Planning and Control Introduction In Modules 1 and 2 the text considered the concept of the time–cost–quality continuum. perhaps because too much rework is being required. if the same number of people are required 5/2 Edinburgh Business School Project Management . However. It has been decided that quality needs to be improved. The solution in this case is to increase the time allowed. strategic project planning exercise. generate and execute crash scenarios. clearly define the differences. This process involves breaking the project down into individual components and then allocating times or duration values to each component. By the time that you have completed this section you should be able to: • • • • • • • understand the process for generating a work breakdown structure (WBS).

Time planning is only one form of planning. Although this section concentrates on time planning. Hence there is generally a need for a replanning process that runs in parallel with the implementation phase. Figure 5. These variances are then used as the basis for management reporting. the wage costs will be higher). it must be borne in mind that. in practice. A change in any one of these variables will almost certainly impact on one or both of the other two. The project manager can also use this information to determine where problems are likely to arise in the future.Module 5 / Project Time Planning and Control for longer. an implementation phase and a replanning phase.2. except for the most simple. Planning sets the goals or targets to be achieved. Actual performance is compared with planned performance in order to isolate variances. and so position B rather than B1 is likely to result. Most projects have a planning phase. it is intrinsically linked to the other two variables of quality and cost. which monitor actual performance and track it over a period of time. Planning is a distinct phase and is separated from implementation or other phases. Most projects involve cost planning and quality planning as well. Replanning generally requires trade-offs to be made among the three variables. it is not generally possible to consider time planning in isolation. Plans are not static because unforeseen events will occur during most projects. Project Management Edinburgh Business School 5/3 . as shown in Figure 5.1 Typical project management time–cost–quality continuum Time planning is also intrinsically linked to the life cycle of the project. Planning sits within a life cycle continuum. The project manager attempts to ensure that these targets are met through project control procedures.

plot a course so that the project can move from the current position to reach the desired end position. the goals of project planning are to: • • • establish the desired end position (in terms of project outcomes). It then uses these variances as the basis for management reporting and executive decisionmaking. They use this information to pre-empt the problems or to mitigate their effects if they cannot be pre-empted. as the project progresses. This usually occurs at the start of the scheduling stage.2 Planning and replanning phases Project planning is used to establish targets for performance so that. After this point. 5. Subsequent modules consider cost planning (Module 6) and quality planning (Module 7). actual known performance can be compared with planned performance and variances can be calculated.1. cost and quality.2 Aims and Objectives of the Planning Process In the most general terms. Planning can also be used to predict project performance by comparing performance projections against planned values. It should again be noted that the early stages of the planning process are to some extent common for time. establish the current position.Module 5 / Project Time Planning and Control Planning phase Implementation phase Use Variations and change Replanning Change control Trade-offs Figure 5. More experienced project managers can look at the project plans and quickly see where problems are likely to occur. the remainder of the module discusses planning purely from the point of view of time. Edinburgh Business School Project Management 5/4 . This module considers the process of time planning from inception through to implementation. replanning and trade-offs. It is only after a certain point in the project life cycle that the consideration of the variables splits into different specialisms. This is a retrospective or reactive form of analysis in that it uses discrepancies between actual and planned progress to show where the project is performing well or badly. This is a predictive or proactive form of analysis.

consider the work to be done and compartmentalise it (develop work packages) in some way. determine the cost and duration of each work package. More specifically.Module 5 / Project Time Planning and Control • • • • establish variance limits so that any significant divergences away from the plotted course are detected. Often. establish project objectives that are clearly compatible with these strategic objectives. the process of project planning should: • • • • • • • • • • • • • • • • consider the overall strategic objectives of the organisation. how and when. set up a suitable organisational structure. Something might then happen. Generally. establish a formal communication system. any corrective actions are also linked to the defined success criteria. There can be a number of alternative time plans that will achieve the same project goals. establish baselines. allow necessary resources so that divergences can be corrected. An obvious example is resource availability. it will be down to the preference and experience of the project manager. Project planning and monitoring establishes where the project is now. establish suitable motivation procedures. where it is trying to get to. The first consideration is: ‘How important is the delay?’ It might be more important to Project Management Edinburgh Business School 5/5 . integrate resources with work packages. identify critical activities and communicate the importance of these activities. a project may be running on time up to a certain point. determine the resources that are available or are required. determine the various interdependencies between the work packages. Some will inevitably be more appropriate than others. the larger the required course change. and in turn are linked to the drivers of performance in each area. but there will frequently be more than one way of achieving the same end. In addition. establish who does what. analyse the various work packages and work out the most logical sequence of execution. how far off course it is. The current and desired end points are defined in terms of the project success criteria. or the project planner working under the control of the project manager. the more extreme the corrective actions required. culminate with the production of a strategic project plan (SPP). and the end result is a delay. establish clear aims and objectives for each section of the project team. and what corrective action is needed in order to bring things back on line. ensure that all divergences are pulled back into line. The cause of the delay could be within or outwith the control of the project manager. For example. allow some kind of contingency to cover major divergences (especially unforeseen ones).

Project planning for other areas is a specific requirement. Project time planning involves identifying. The plan is not static. However. In the latter case. many thousands with complex interdependencies. risk management planning. conflict and stress management planning. At best. health and safety planning.3 Project Time Planning and Control and the Generic Project Plan The concept of the generic strategic project plan (SPP) has been discussed in Module 4 and project time planning and control process is part of the contents of an SPP. 5. Separate plans are required for each of these elements. and provision should be made within the SPP. The planning process must be robust enough to respond to the constantly changing environment in which the project exists. and also a wide range of other planning element. At the end of the planning activity. Depending on the nature and size of the project this information can range from just a few activities and resources to. It is generally possible to speed up most processes. Time planning and control is therefore one of the core skills used in project management to guide the project team from project start to finish. The SPP is a project document that includes all the information relevant to the planning process for the entire project. cost and quality. the planner must never lose sight of the project goals and objectives. the final version of the plan may be substantially different from the first.Module 5 / Project Time Planning and Control complete the project to the required standards or on cost. including: • • • • • • • • organisational and authority planning. in the case of large capital projects.1. time project plans are 5/6 Edinburgh Business School Project Management . sequencing and scheduling activities and resources. planning is a highly complex and iterative process. The project manager therefore has two ways of achieving the same result. However. and the subsequent planning and replanning processes will depend on which alternative is most desirable. The plan is regularly adjusted to incorporate more up-to-date and increasingly accurate information. change management planning. communications systems planning. then it might be desirable to reduce the delay at the expense of performance in the other two areas. The collective assembly of all these individual sub-plans forms the generic SPP. time planning is concerned with the development and implementation of a set of strategic objectives. and others as appropriate. financial planning. This includes time. but lives and develops throughout the project’s life cycle. if the delay is significant and time is crucial to the success of the project. authorisation and compliance planning. As with most other project-management functions. this usually involves either producing the same quality more quickly (increased resources and therefore increased costs) or producing a lower quality in the same time (reduced standards). However.

Time replanning tends to become more complex as the project continues. it is only one element. It is essential for such activities as placing orders. This acts as an indicator of key dates and milestones. This is because more and more design and execution detail becomes fixed as the project progresses.1.Module 5 / Project Time Planning and Control powerful tools that embrace the project vision and communicate the why. the effects of these changes on the time planning process will increase as the project evolves. Even on simple projects. the client may require more and more minor alterations as the design process continues. The plan is a tool and planning is a skill used to help project teams proactively manage projects more effectively. when and how of this vision to others. It is at its most intense during the design and appraisal phase and decreases steadily throughout the implementation phase. changes occur throughout the life cycle of the project. It therefore becomes more expensive and has greater time implications on a project to make changes as the project continues. The nature and intensity of the planning activity thus varies throughout the life of the project. However. working around these becomes increasingly complex and is to be avoided or minimised wherever possible. In most projects. but the intensity of planning activity varies over the life of the project. change generally has to be controlled in some way as the cumulative effect of a number of small changes can have a large effect on the project as a whole.4 Project Time Planning and the Project Life Cycle Planning is carried out throughout the project life cycle. If there is no definite cut-off point for design changes. Usually planning is most intense in the early stages. a project time plan is calculated at the outset of the project. and project requirements can change.3 shows the typical planning and replanning requirements for each stage of the life cycle of the project. However. However. These plans form the basis for co-operative efforts that characterise successful teams. By the end of the project there is no planning activity. major changes during a project will result in increased planning activity no matter what stage the project is at. Project time planning is not project management. The result is that planning and replanning continues throughout the life cycle of a project. This replanning process is a central requirement on most large projects. In most cases. and can be one of the most complex areas that the project manager has to manage. This can be represented graphically as shown in Figure 5. The level of planning activity is generally concentrated during the early stages of the project and rapidly builds up during the proposal and initiation phase. Thus. times and dates are likely to vary throughout the life cycle of the project. Figure 5. while the cost and implications of change increase in proportion to project evolution. 5. Internal and external factors influence the actual rate of progress. As the client sees more and more detailed prototypes Project Management Edinburgh Business School 5/7 . The scope for change decreases in proportion to project evolution. what. In some projects. later stage changes can have critical effects. An example of this is creeping scope. agreeing delivery dates and calculating start and finish windows for subcontractors. where.4.

Some of these will be outside the direct control of the project manager. Post-design changes are necessary in order to correct such omissions. Even with the most careful planning and design it is never possible to cover every aspect of the detailed design of the project.3 Planning through the project life cycle and samples. there is always the tendency for additional specifications to be added.Module 5 / Project Time Planning and Control Overall level of planning activity Project life cycle stage Stage Initiation and feasibility Design stage Execution stage Completion and commissioning Aim Conception Learning Growth Maturity Type of planning activity Objectives Feasibiity Brie Scope Estimating Activities Resources Cost limits Risks Project plan Budget plan Cost plan Trade-offs Re-planning Administration Progress Reporting Responses Monitoring Control Final account Defect remedy Commissioning Facilities Maintenance Project evolution Figure 5. Possible examples could include the following: • Internal (optional) change Large projects are characterised by a high degree of internal change which is introduced as an option by the client. 5/8 Edinburgh Business School Project Management . Later stage replanning may nevertheless become necessary for a number of reasons. Clients also often introduce new elements after the original design has been completed. These changes may be relatively insignificant but major changes are likely to generate a need for significant re-planning.

Module 5 / Project Time Planning and Control Cost of change Cost opportunity Point at which change becomes prohibitively expensive Opportunity for change Design/planning Implementation life cycle Figure 5. The initial time plan is necessary in order to establish a project schedule. Miscalculation The various project planners may miscalculate the amounts of time or resources that a particular work package requires. One example is where a supplier or subcontractor’s business fails and it becomes necessary to find a replacement.4 Typical relationship between project life cycle. opportunity for change and consequences of change • • • External (imposed) change External changes often generate a requirement for significant re-planning. However. The emphasis on the planner therefore changes from pure planning in the earlier stages to replanning and monitoring during the later stages. This action may solve the immediate problem but it may cause subsequent delays further down the sequence of work. Subcontracts can have a significant lead-in time and it may be difficult to find a replacement within a time scale that will not disrupt the project. it is also important to appreciate that the schedule has to be constantly replanned throughout its life cycle. Project Management Edinburgh Business School 5/9 . It is important to appreciate that time planning is an ongoing process. For example. a particular work package may finish earlier than anticipated (perhaps because of over-pessimistic estimating) and consequent re-planning will be needed in order to reduce the extent to which resources are idle. Cost contingencies and time reserves can absorb such changes but only up to a limited extent. Some kind of baseline or milestone schedule is necessary at the outset in order to calculate key dates for the project. This may result in significant cost and time effects. Project managers sometimes refer to this practice as ‘shuffling’. Sequential disruption The project manager may sometimes be forced to take resources from a later work package and temporarily re-allocate them to a current work package that is being delayed.

This distinction is shown in Figure 5. This condition would apply in most types of construction projects. accuracy and reliability. an estimate of the time required to service a vehicle will consider the work involved. The information may come from a wide range of sources. communication. Time planning on large projects is influenced by a range of other variables. reasonable assumptions and past experience.2 Sources of Time Planning Data The project plan has to take account of large amounts of information. project uniqueness. and an adjustment based on how long the work took last time. It 5/10 Edinburgh Business School Project Management . Most project planners base estimates for individual activities on their own knowledge and experience.2. It represents an approach to assessing activity start and finish times using a series of estimates and approximations that are based on a combination of common sense.1 The Process of Project Time Planning Factors Affecting the Time Planning Process Introduction Project time planning is not an exact science.6 shows some of these sources. These variables affect the data and assumptions that are used in developing the planning and control system. 5. for example.2. To use an example. people issues. However. This subsection considers the effects on time planning of the following variables: • • • • • • • sources of data. complexity.1 Each is considered in turn next. some forms of contract allow for non-traditional sequencing.5. A planner will know roughly how long it takes to construct say one square metre of single-course brickwork. simply because the company will probably have done a lot of brickwork on other projects in the past. In cases where similar projects have been run in the past.1. Discrete planning and operational phases are characteristics of traditional projects that have clear design and implementation phases.2 5. it is usually possible to derive reasonably accurate estimates for most activity durations.1. 5. an appraisal of repairs likely to be required based on reasonable wear and tear.2. 5. Figure 5. uncertainty and change.Module 5 / Project Time Planning and Control Planning requirements also depend on the characteristics of the project. and these types of project may be characterised by blurred boundaries between planning and implementation.

5 Planning variations between example traditional and non-traditional life cycle phase projects is therefore feasible to forecast with reasonable accuracy the time required to construct brickwork on current and future projects. there are sometimes national or industry-specific standards Project Management Edinburgh Business School 5/11 . Where historical information is not available.Module 5 / Project Time Planning and Control (a) Traditional life cycle Inception Planning Implementation Close out Planning activity Life cycle phase Inception Plan Imp Package A Package B Plan Imp Package C Plan Imp Package D Plan Imp Close out (b) Phased life cycle Planning activity Life cycle phase Figure 5.

6 Sources of data available. Company strategy and shareholder preferences can also influence the process significantly. a major competitor might be about to release a product that will be in direct competition to the one that the client is about to release. Most standard forms of contract provide a range of key dates to be met within the contract terms and conditions.Module 5 / Project Time Planning and Control Internal and external standards and statutory controls Internal and external historical data Stakeholder influences Working knowledge and experience The project plan Company and project strategy Environmental influences Contracts Technical factors Figure 5. the value at stake is not only the sale value of the consoles but also the value of all the games that can be sold to play on the console over the next few years. It might be worth injecting more resources into the project and increasing costs by say 20 per cent in order to make sure that it is open in time for the Christmas rush. even though the required resources might be more costly than working at a slower pace. These would include date for possession. period 5/12 Edinburgh Business School Project Management . The extra trade over this period might more than pay for the additional capital outlay. This type of scenario is sometimes found in competitive electronics. The form of contract can also be important because it can influence the client’s planning process and have a major impact on the planning assumptions made by contractors. An example of is a supermarket chain that wants to get a new supermarket open in time for the Christmas trading period. even if this increases development and production costs. which is discussed in more detail in Module 7). (The concept is one of time-based competition. A particular client might want a project finished very quickly because this is the accepted norm for that particular industry or sector. such as the release of new games console systems. Environmental conditions can also be a major consideration in the planning process. One example could be the performance and strategy of the competition. The company might have a policy of completing projects as quickly as possible. If this is the case. date for practical completion. In such cases. subcontractors and suppliers. the client might put a higher priority on releasing its product first. Alternatively.

local government regulations (such as a requirement to employ a certain minimum percentage of local labour). local environment (such as restrictions on working practices and access). Shareholders might demand early completion and therefore early initiation of revenue flow. The project planner should. 5. Stakeholder preferences can be another influence. Technical procedures might dictate the degree to which some aspects of the plan are developed and progressed. the availability of contractors. Alternatively. In most cases this involves developing a separate and unique project plan from first principles for each new project. but some obvious differences may include: • • • • • • the relative uniqueness of the project and therefore the extent to which knowledge transfer can be used. The physical aspects of the project may appear to be identical to a previous project. Government regulations could influence parts of the plan by imposing compliance deadlines. the characteristics of the client and therefore the approach that the project manager has to adopt. External financiers might prefer a slower rate of progress with less inherent risk. Even within the same country and operating under similar legal and cultural conditions. etc. but should never lose sight of the unique aspects of the project. period of defects liability. the contractual conditions employed and therefore the distribution of liabilities that have to be considered. local conditions (such as soil type in construction projects). there could be factors that will affect the project and make it different from a similar project just a few miles away. of course. utilise historical data to improve accuracy and increase efficiency in preparing the plan. In some cases the most powerful or influential stakeholders might push for one aspect more than others to be catered for more in the project plan. in which case the various subcontractors will go through the same process.1.Module 5 / Project Time Planning and Control for final certification and completion. In arriving at a tender price. the contractor will look at the time scales allowed for each section of work and will resource them accordingly. Edinburgh Business School 5/13 .2. the contractor might subcontract some or all of the individual work packages. subcontractors and suppliers and the relative reliability that they offer. client characteristics (such as operational policy).3 Project Uniqueness No two projects are exactly the same and hence it is necessary to plan every project independently. This sometime happens where the plan coincides with the introduction of new legislation. the specific objectives of the project and therefore the relative priorities to be considered. Examples could include: • • • • • Project Management time of year (in weather dependent projects). the geographical location of the project and therefore the effects of the local culture.. The period allowed will directly influence the contractor’s planning process.

By including stakeholders in the planning process and consulting with them. or even work to sabotage it. Others prefer to operate ‘by the seat of their pants’ and enjoy making decisions instinctively.Module 5 / Project Time Planning and Control These variables can all have a significant impact on the project plan and therefore should be recognised and incorporated in the planning process. Before planning commences.1. to comply with the unique information that was input to describe the individual characteristics of the project. Also. Ultimately. to some extent. it is a reasonable assumption that planners and project managers will have to take the trouble to identify for themselves the individual differences between projects when setting up their planning and control systems. the plan will carry much more 5/14 Edinburgh Business School Project Management . This misjudgement may become worse as the planning becomes more detailed through the project life cycle. It requires an ability to look ahead and effectively integrate uncertainty with the more tangible aspects of planning such as estimating and scheduling. The potential trap is that people with little experience of working within the type of planned environment demanded for projects to succeed may not adhere to the project plan and work independently of it. and thereby moves even further away from the intended goals and objectives.4 People Issues Project planning demands a systematic approach to working that not everyone is comfortable with. The project plan will be stronger if all project stakeholders ‘buy in’ and support it. Project objectives are derived from the strategic business objectives. Researchers have made some attempt to develop expert systems (advanced software programmes that attempt to replicate the knowledge base and decision making ability of experts) for project planning and control. the project must be carefully defined and its objectives made clear. can predict effectively the future activity levels in their departments with little or no formal planning. These expert systems are frequently based on genetic algorithms that use a reasoning process to evaluate the significance of different conditions that apply to each new project. particularly those in functional areas. The system then uses a centralised database of project planning data to develop a rudimentary project plan that is tailored. in large projects with large numbers of activities. Their departments do not undergo much change and their annual planning activity is little more than a budgeting exercise based on last year’s figures. and this relationship is often neglected in the planning activity. They do not want to be constrained by formal plans and are often uneasy with control systems. Good project planning also requires considerable imagination and creativity. If the two sets of objectives are incompatible. Given the present state of software development. particularly in their areas of special interest. any ambiguity in the scope definition can lead to misaligned activities and a lot of wasted effort. then conflict will arise between project and organisational management. 5. They have no real experience or knowledge of planning. and these characteristics are not universal. Many managers. the project may lose organisational support and fail.2.

In addition. They are then obliged to work to these programmes. the level of design information included at tender stage is generally good enough to prepare a tender. the plan may be imposed as a contractual term and condition. the criticality of each work package.1. Contractors and subcontractors often receive project plans that have been agreed at a higher level within their organisation with no prior consultation or communication. they can never be wholly accurate. In most projects. even if they consider them to be unreasonably short or unworkable. refined. the prospect of project failure under these circumstances is very high. In external project management situations. Once the elements or components have been identified. in whatever form it takes. or the project team stubbornly adhering to the original plan and failing to overcome obvious weaknesses. and breaking it down into separate elements or components that can be individually and collectively controlled. and consultation is not always an option. reasonable and achievable. but it is rarely more than about 90 per cent complete. the importance of each work package to the project as a whole. and ultimately to project failure. The planning must therefore continue through the life cycle of the project. the accuracy of planned activities will improve and the plan itself will be much more credible and viable as a result. There will always be a requirement for additional planning as design information is queried. the resources required by each work package. no matter how carefully prepared. on the whole. the project manager or planner then has to determine: • • • • • the position of each work package within the immediate sequence of work. This can lead to stress and conflict. Large projects will include thousands of activities and it should be recognised that although plans may contain the best possible estimates. By doing this. an overall reduction in morale. However. impractical because few if any individuals are capable of Project Management Edinburgh Business School 5/15 .5 Complexity Planning for large projects can be extremely complicated. and issued by the design team.2. the amount of cost or time overrun (slippage) that is acceptable for each work package. Failure to continue the planning process through reliance on the original plan will inevitably result in either the plan eventually becoming unworkable and the project going forward unplanned. it is still essential that the stakeholders view the project plan as being fair. The original plan. The development of a single plan comprising many thousands of activities is. Perhaps the most difficult part of any planner’s job is to predict the activities required to complete the project with any reasonable degree of accuracy. will inevitably require amendments from a very early stage. Either way. with resulting undesirable outcomes. consultation with stakeholders should result in a more robust plan. 5. This involves reviewing the work description. Good project planning involves continually reassessing the plan and continuing the planning process throughout the life of the plan.Module 5 / Project Time Planning and Control support and will have a greater chance of success.

(These will be considered later in this module). To achieve good workable plans. administering the plan becomes the main activity of the project management team.2. the cost of eliminating some risks may be prohibitively high.2. Plans are then constructed for each element. The WBS reduces the overall requirement into manageable elements and this is cascaded down through the organisation. However. Edinburgh Business School Project Management 5/16 .6 Uncertainty and Change Uncertainty is inherent throughout any project plan. It requires an in-depth knowledge of sophisticated planning techniques and systems that are outside the scope of this module. it would be a fruitless exercise because: • • • • • it is not possible (or desirable) to eliminate them all. Even it were possible to identify all of the potential risks. the planning skills are best complemented by sound operational and technological knowledge.1. it should be recognised that it is impossible to manage all uncertainty contained within a project plan. Developments in information technology have created a number of project planning programs that require training and experience to operate and use effectively. retaining and doing anything useful with this amount of information. as demanded by the specific project. As well as the global uncertainties surrounding the project as a whole. With plans of this nature. To avoid this and enable effective project management. some risks cannot be accurately assessed. Even the most meticulous and carefully prepared plans are subject to some degree of uncertainty. 5. It is highly unlikely that an inexperienced planner would be responsible for project planning. making misguided assumptions. Risk and uncertainty have been discussed in Module 3. work breakdown structures (WBS) are needed.7 Accuracy and Reliability Planning large projects requires some highly complex and specialised skills. due to information overload. Any estimate of project and individual activity duration can only ever be an estimate. but in practice it is common to find a planner: • • using software that he or she is not fully familiar with.1. eliminating some identified risks might give rise to new risks. the relative importance of risks may change over time. predicting its force can be hazardous and it may be that the risk can only be mitigated to a limited degree. and there are a lot of things that could happen to individual and collective elements to make the original duration estimate inappropriate. Even when the nature of uncertainty is easily identifiable.Module 5 / Project Time Planning and Control absorbing. 5. Risk management plays an important role in project management and the success of projects is often a function of being able to identify and mitigate the most likely risks. there are elements of uncertainty within each of the planned activities and all of the assumptions made during the planning process.

As well as the obvious consequences for project success. If the members of the team lose faith in the planner. 5. stakeholders must be fully aware of their responsibilities. or become. the process is essentially to: 5.2. One significant advantage of the latest project-management software packages is that they are capable of producing reports in many different formats. not fully understanding the software and the implications for the linkages between work packages. Irrespective of the definition required in the work package breakdown. A package for cost control purposes might not match the packages defined for quality management purposes. it is possible to customise the plan to some extent to suit individual stakeholders. Thus.2 The Planning Process Introduction Irrespective of whether the project manager is developing time.8 Communication If the project plan is to be effectively implemented. it may be that some stakeholders are not familiar with the system being used.2. This involves breaking the project down into work packages where individual targets for performance can be set for each block of work. a poorly communicated project plan can have a devastating effect on the project team by demotivating and alienating team members who are. confused about their responsibilities. This issue is intensified with the increasing use of electronic mail.2.Module 5 / Project Time Planning and Control • • not using sufficient data in making estimates. 5. It is prudent for the planner to check with the project team at an early stage and ensure that they understand the system being used. The level of definition of each individual work package will depend on the nature and type of project. the same basic procedure is adopted. cost or quality plans. One significant disadvantage of information technology is that it is capable of producing volumes of data at the push of a button or click of a mouse. There is therefore a tendency to issue everyone with far more information than they require. It is important that the planner has the skills and capabilities to make him or her credible to the other project team members. and in particular what the output data really mean. Project work packages might vary in relation to the specific planning and control system needed. They are then burdened with the task of filtering out what they need to know at the risk of missing something important.1. they will not have faith in the plan and will not support it. understandable and unambiguous. the information must be issued in a format that is clear.1 Project Management Edinburgh Business School 5/17 . To achieve the required degree of awareness. With so many different planning systems available on the market. where the cost of preparing and distributing information is negligible.2.

Draft master schedule (DMS) 1 2 3 4 5 6 Cost 5. execute Project Logic Evaluation (PLE).Module 5 / Project Time Planning and Control 1 2 3 4 5 6 7 evaluate the project through the Statement of Work (SOW). 1. produce the project master schedule (PMS).7 The top-down strategic approach to project planning 5/18 Edinburgh Business School Project Management . The project Statement of works 2. Work Breakdown Structure (WBS) 3. use trade-off analysis to replan. use network analysis (chiefly CPM or PERT) to generate a draft master schedule (DMS). generate a Work Breakdown Structure (WBS). Trade-off analysis Time 6. separate time. Project master schedule 1 2 3 4 5 Figure 5. cost and quality planning. Precedence diagram 4.

specific conditions.Module 5 / Project Time Planning and Control This process is represented diagrammatically in Figure 5. 5. It is necessary to break the whole down into individual components that can be individually evaluated and managed. schedules. appendices. The elements of the process are examined below. This sequence will determine the overall time. specification. methods of handling variations.2. It is strategic in that these work packages are then projected forward so that an overall sequence of execution can be derived. dispute–resolution procedure.2 The Statement of Work (SOW) The statement of work (SOW) is the descriptive document that defines the overall content and limits of the project. Typical SOW contract documents include: • • • • • • • • • • • • • • • signature block and project title. In practice. However. Information and facilities to be provided by the client detail the additional obligations of the client under the contract. The level and accuracy of information provided should be such that contractors or others can price for the work to be carried out. working drawings. The SOW includes all the work that has to be done in order to complete the project. arbitration or litigation. form of tender. cost and quality control. terms of payment and interim valuations. definition of contract terms and scope. It is a top-down approach in that it takes the work at the project level and breaks it down into individual work packages or components that can be planned independently in terms of time. information and facilities to be provided by the client. The definition of contract terms and scope summarises the terms and conditions used and describes the range and extent of the works in sufficient detail to identify the limits of the project. Project Management Edinburgh Business School 5/19 . project approval requirements. This may seem obvious but it has important implications if any part of the contract subsequently becomes the subject of a dispute.2.7 and is known as the top-down strategic (TDS) approach to project planning. A typical SOW contains all the information that is required by a contractor or other tenderer or bidder. bonds and insurances to be provided. The signature block and project title identify the project and the parties to the contract. nearly all projects have a SOW as they cannot be efficiently managed or executed unless the managers and administrators can define the boundaries and limits of the project. cost and quality planning and control characteristics of the project. claim. the project cannot be planned or controlled at this level as it is too big. general conditions.

with a balancing payment at the end of the contract when the works are finally measured and agreed. Provision for change and variation is usually included within the general and specific conditions. materials delivered. They are sector-generic and are designed to cover the primary duties and obligations under the contract in most applications. it might be treated separately and be included as a separate document. The specification describes the technical performance standards required. Arbitration provides a quicker and cheaper alternative. The procedures are designed to allow reasoned and informed discussion. such as fees and contingencies. depending on the sector or industry concerned. This usually is required up to a stated percentage of the contract sum. This activity usually goes on throughout the life of the project. Most contracts provide for an arbitration process. An example is the new engineering contract. working times and access. General conditions can be ‘bought off the shelf’ in many cases. This is a document that contains standard contractual terms and conditions for use in any engineering-based contract. where the client and contractor agree on the extent and value of the works that have been completed. On a large and complex project. Payment systems are usually included within the standard or specific conditions of contract. followed by recourse to litigation if arbitration proves to be unsuccessful. Typical examples would include restrictions on noise. Specific conditions are drawn up for each particular project. Dispute resolution is the process for dealing with disputes and arguments. Schedules describe and summarise the various component and assembly requirements. Contracts involving public finance often require detailed bond cover. They prescribe procedures that are to be adopted in the event of a dispute occurring. These are generally based around a monthly valuation. Guarantees and warranties may be required over and above this. Clients often want to add specific terms and conditions to suit their own circumstances. This is sometimes referred to as the final account. sometimes chaired by a facilitator. It would contain provision for seeking approval of variations or changes as the project progresses. in an attempt to resolve the dispute without need for further action. The bond covers contractor performance up to practical completion 5/20 Edinburgh Business School Project Management . legally committed funds and an allocation of provisional and overhead percentages. General conditions are standard forms of contract. Bonds and warranties conditions specify what provision is required and how this is to be executed. This sum is then paid to the contractor as an interim payment. Working drawings show the full design information. Increasingly. together with procedures for valuing variations and obtaining payment for them. This is important because it prevents costly lengthy legal actions that can delay the project completion. contracts require alternative dispute resolution (ADR) systems to be included. perhaps 10 per cent. The form of tender constitutes the legal offer to carry out the works and the appendices contain any necessary summaries of any additional contractual information. The form of tender usually states the project title and parties involved and acts as an agreement to carry out the works as described for the stated sum.Module 5 / Project Time Planning and Control This could include items such as access to premises while works are carried out and commissioned. and add a reasonable allowance for agreed variations.

more manageable. Trying to tackle the large objectives as one entity would be an intimidating process with little chance of success. cost or quality objectives of the large task by adding together the corresponding values of each contributing sub-task. in most projects the major deliverables are large objectives that are impossible to deliver with a single clearly defined activity. Clearly.2.2. It is necessary to split the large element up into smaller ones.3 The Work Breakdown Structure (WBS) Accurately defining the scope of a project is crucial to project success and must be carried out before any sensible attempts can be made at scheduling and budgeting. and this will differ from the cost estimate and specification for the wallpaper. this level of detail is needed for such processes as quality specification and cost planning. 5. The WBS forms the building blocks of much that is encompassed by the term ‘project management’. It acts as the basic starting point for all subsequent time. The warranty guarantee covers the quality and reliability of the finished product after hand over and during use. For example. The carpet will have one quality requirement and cost. perhaps by being insurance backed. such as a bank guarantee. Identifying the major project deliverables is the first task. However. define a baseline for performance measurement and control. The conditions of contract might require that the warranty is secured in some way. components. identify clear and achievable tasks and responsibilities. The person can now measure up individual sizes and (if they are cost planning) by using unit rates. transferable in the event of the finished project being transferred or sold to a new owner. A work breakdown structure (WBS) is simply a representation of how large tasks can be considered in terms of smaller sub-tasks. The importance of the WBS cannot be overstated. The idea is to work out the time. In most cases.Module 5 / Project Time Planning and Control and hand over. the primary success and failure criteria are converted into specific deliverables in the contract documentation. The most obvious second-level split is by room. when redecorating a house. Having identified the primary components of the SOW. the next step in the planning process is to break this SOW down into smaller units so that each can be evaluated separately. a person might want to work out in advance how long it is going to take and how much it is going to cost. This cannot be done by considering it simply at the highest level. time and resource estimates. The cost of any element at level 2 should equal Project Management Edinburgh Business School 5/21 . can calculate the cost of each element at WBS level 3. The concept of project success and failure criteria have been discussed in Module 2. The next obvious level of the WBS is to isolate individual decoration elements such as paint and carpets. This is necessary in order to: • • • improve the accuracy of cost. The SOW should clearly itemise what the required outcomes are. The documents might require a collateral warranty. It is important therefore to break down these deliverables into smaller. cost and quality planning-and-control systems.

Cost centre 1200 Maintenance Planned maintenance 1200. Edinburgh Business School Project Management .02 Safety 1200. it may be possible to measure and operate at level 3. This is the basis of roll-up analysis on more complex projects.01. One example is shown below. work package.01.8.01. element. Most WBSs operate down to about six levels.8 WBS arrangement for maintenance considerations The characteristics of the WBS will vary depending on the nature of the project. for example.Module 5 / Project Time Planning and Control the sum total of the individual costs that emanate from it in level 3.01 Cyclic maintenance 1200.02 Responsive maintenance 1200. Different authors recommend different levels of WBS breakdown and use different terminology.01 Mechanical 1200.01.01. For general valuation purposes. This diagram represents a possible arrangement for breaking down maintenance elements for a production line.01 Cabling 1200.01. The primary characteristics from an operational point of view will be threefold. project. An example is shown in Figure 5.01. work package component.03 Components 1200.01. but a project manager should operate within whatever levels are most appropriate for the job in hand.03 Electrical 1200.01. sub-element. For preparing detailed estimates of variation-order costs. it may be necessary to operate at level 6.02 Circuits 1200. Level Level Level Level Level Level 5/22 1: 2: 3: 4: 5: 6: The The The The The The programme.03 Figure 5. as set out next: • Level of definition of the WBS.

This is generally the case with computerised database estimating system (CDES) packages. The project Edinburgh Business School Project Management 5/23 .10. consolidating and communicating the WBS.9 Typical WBS tree-structure arrangement • The number of WBS levels required increases with the size and complexity of the project and is determined by the need to define tasks at a level where they are manageable and achievable. Task codes can be used as unique identifiers throughout the project for many purposes. cost allocation. An alternative is the tabular form shown in Figure 5. The WBS is usually presented in the form of a tree diagram as shown in Figure 5. including responsibility allocation.8. It is important to appreciate that WBS element codes should be designed so as to accommodate the cost accounting code (CAC) system that is in use. Small projects such as preparing a simple brochure may require as few as three layers. whereas a project such as a launching a global marketing campaign for a consumer product may have up to six or seven levels. monitoring and reporting. Factory level 1 Phase 1 Manufacturing complex Phase 2 Phase 3 level 2 Offices Access roads level 3 Office 1 Office 2 Office 3 level 4 Services works Construction works Walls External works Roof level 5 Foundations level 6 Internal walls External walls Non-structural walls level 7 Figure 5. This assists in identifying. Numbering the WBS. An example of a numbering system is shown in the WBS task list shown in Figure 5. A logical and straightforward numbering system is required to ensure that each task is properly coded.9. The CAC system is simply an alternative form or representation of WBS.Module 5 / Project Time Planning and Control The individual level appropriate to each application varies. with individual identifiers for each cost-centre heading or budget-plan section. High-risk activities should be further broken down in order to isolate the risk and plan for its mitigation. Most modern project planning and control software automatically generates work element codes as the WBS is generated.

2.2. the WBS is prepared by project phase but it is a matter of choice and the WBS may by based on any of the following: – Work type The WBS may be split up into its different elements according to the type of work involved.2.e.1.3 Complete access roads 1.2.2.2.2.2.1 Complete foundations 1.2.2.2.2.1 Complete phase 1 1. In most cases.2.1 Complete office 1 1.3 Complete phase 3 Figure 5.2.2 Complete construction works 1. This allows easier recharging of invoices and other costs against the correct WBS budget code.2 Complete walls 3. it is assigned an individual element code that it retains for the duration of the project.2.2.2.2. This approach might be used on larger houses or hotels where Edinburgh Business School Project Management 5/24 .1 Complete manufacturing complex 1. determines the work required and describes it in some way. or whoever is producing the SOW from the project drawings.3 Complete external works 1. In the redecoration example the primary elemental divisions could be decorator and carpet layer. As with most aspects of planning. As a WBS element is generated.2.2.2.1 Complete internal walls 1. The same element code will be used in each part of the system i. there is no single correct way for preparing a WBS.2.2.2 Complete external walls 1.2.2.3 Install electrical system 1. – Responsibility The WBS could be assembled according to individual responsibilities. it is automatically stored in the CDES as a WBS.Module 5 / Project Time Planning and Control manager.2.2.2.3 Complete office 3 1. In redecorating a house the primary elemental divisions could be decorating and carpets.2.2.2.2.2 Complete offices 1.2 Complete phase 2 1. This approach would be used.2.2. In the example shown above.2.2. In the redecoration example the primary elements might be upstairs and downstairs followed by sub-elements representing single rooms.2. As a particular piece of work is defined. cost and quality planning and control. – Location A further alternative is to base the elemental divisions on location. An example of this approach would be where control of the individual materials is required.2.2 Complete office 2 1.2. The CDES prompts the designer with standard works descriptions and price codes.1 Complete services works 1.2. where the client needs to agree a fixed fee or labour cost with the various contractors. 1 Construct factory 1.3 Complete roof 1.2. A homeowner might be working to a budget and therefore needs to know exactly what the carpets are going to cost.10 Typical WBS tabular-structure arrangement • Dividing the WBS. time. for example. the WBS element code is the same as the CAC.2.2.

This is a prerequisite for placing orders. Project Management Edinburgh Business School 5/25 . indicating when expenditure on each activity is going to start and finish. etc. cost and quality evaluation.2. This is by no means a definitive list of the basis for a WBS. This is obviously important for time.Module 5 / Project Time Planning and Control there are a lot of similar sized rooms and it is easier to adopt a modular approach. Often.2. The process involved in diagnosing the problem would then probably be one based on elimination. and eliminating components systematically until the defect is traced. PLE simply involves taking the WBS elements and deciding on the most efficient logical order in which they should be carried out. PLE is also required for quality control as it defines the activity windows for individual work packages that may be subject to testing etc. The total cost or time required to complete one work package will be the sum total of the individual work packages that make up that overall package. which is required for any comparison between budgeted and actual rates of expenditure. the next stage of the planning process is to work out the sequence in which the works are to be executed. For time control. trying and testing each component to see whether it is defective. Most are developed using some kind of roll-up approach. Different levels within the WBS would be used for different purposes. Level 3 on mechanical components might be all the individual moving parts that could have failed and lead to the problem in starting the engine. cost or quality. committing to delivery dates. PLE is also required for cost-planning calculations: the WBS acts as the basis for the budget plan. Questions: • • • How could a WBS be developed to represent a person redecorating their living room? What might this WBS look like? How might the various levels of detail be specifically used? ♦ 5. there may be more than one answer to this problem. it is also needed for resource calculations. Level 1 might be electrical system and mechanical components. A WBS can take numerous forms. level 2 would represent the fact that there is a problem in starting the engine.4 Project Logic Evaluation (PLE) Project Logic Evaluation (PLE) is the process of taking the WBS work packages that have already been identified and showing the sequence in which they are to be carried out. ♦ Time Out Think about it: Work Breakdown Structure. Irrespective of whether the project manager is planning for time. the project manager has to know when each WBS activity is programmed to start and finish. In trying to diagnose the fault in an engine system.

Put tea in teapot. These are examples of sequential and parallel activity. we can therefore represent the process of making a cup of tea as shown in Figure 5.11 PLE of the process of making and drinking a cup of tea (logic-driven) Representing activities as arrows. The kettle can only be boiled once the activity of putting water into the kettle is complete. 5/26 Edinburgh Business School Project Management . Some of these WBS elements have to be done before others. Activity (2) is therefore dependent upon activity (1) and these activities have to run consecutively. The end format is dependent on the precedences that exist within the sequence of activities. It is based purely on the most logical progression of activities that are involved in the process of making tea. This sequence ignores the normal protocol involved in making tea. put milk in the cup and put tea in the teapot all at the same time. as it does to large complex projects. Put boiling water in teapot and allow to brew. activity (2) must take place after activity (1).Module 5 / Project Time Planning and Control For example. This precedence diagram is indicating that the tea maker can put water in the kettle. The WBS would probably identify the individual activities like this: 1 2 3 4 5 6 7 Put water in kettle. Consider Figure 5. brewing the tea can only occur after the water has boiled and after the tea has been put into the teapot. Pour tea into cup. The SOW would describe the activity in full and the WBS would identify each separate activity. consider the case of making and drinking a cup of tea. Similarly. such as making a cup of tea. For example. The logic is correct. Start Put water in kettle Put tea in teapot Put milk in cup Boil kettle Put boiling water in teapot and brew Pour tea in cup Drink tea Figure 5. The tea can only be drunk after the tea has brewed and milk has been added. Activity (3) is not dependent upon activities (1) and (2) and can therefore run concurrently with them.11. most operations are subject to some kind of resource limitation. This constraint applies just as much to small projects. However. the logic may not define that activity (3) has to follow activity (2). In other words you can put the tea in the teapot while the kettle is boiling.11 again. Put milk in cup. Boil kettle. Drink. In reality.

The logic-driven sequence as shown in Figure 5.12.Module 5 / Project Time Planning and Control but there is an obvious resource implication of the pure logic representation. even though this will obviously increase costs.11 is therefore dependent on additional resources. The diagram shows the tea maker to be putting water in the kettle at the same time as tea is being put in the teapot and milk is being put in the cup. but not for a single person.11 to Figure 5. The program will shift activities along. The resource-driven solution is clearly a different layout to the logic-driven solution. It can only be achieved if there is more than one person making the tea. In this case. but for now it can be assumed that it is feasible to perform these actions simultaneously. This parallel sequence of activities is possible. one of the activities has been moved forward. this approach is not always applicable. This may still be an oversimplification. Programs can be set to level resources within a specified section of the program automatically. If we assume that the tea maker is alone. the precedence diagram changes to that shown in Figure 5. The project manager might therefore decide to develop the precedence diagram where the origiProject Management Edinburgh Business School 5/27 . It is therefore possible to redefine the same logic-driven diagram but this time to allow for resource constraints.12. Putting tea in the teapot is now concurrent with boiling the kettle. as input by the user. and it might not be possible to fill a kettle with water at the same time as adding milk to a cup. it does not follow that the resource-driven solution necessarily takes longer to complete. This involves no necessary time increase. as boiling the kettle is a fixed time activity and cannot be reduced (unless a more powerful kettle is used or less water is put into it). However. Most modern software automatically calculates precedence diagrams using resource-driven or logic-driven formats. The project manager might want to leave the project completion date as fixed and add more resources as necessary. However. Start Put water in kettle Boil kettle Put tea in teapot Put boiling water in teapot and brew Pour tea in cup Drink tea Put milk in cup Figure 5. Resource levelling simply means that the program will automatically go through the calculation process that occurred above in progressing from Figure 5.12 Precedence diagram for making a cup of tea with logical constraints and resources limited to one person (resource-driven) The logic-driven solution requires that the tea maker restricts his or her actions to two simultaneous activities at any one time. and if necessary extend the project duration. in order to keep resource utilisation within the limits that have been set for the program.

where the maximum available units are varied until an acceptable condition is achieved. Resource overallocations are highlighted. as it forms the basis of all subsequent scheduling and networking calculations. Occurrences of resource overallocation are identified and highlighted. The project manager then allocates additional resources until all overallocations have been addressed. The most usual way of doing this is by the presentation of a simple bar chart. There may be several possible alternatives for this. as shown in Figure 5. On most computer systems. this is achieved by the use of a so-called resource sheet. Questions: • • • 5/28 What would a precedence diagram for changing a flat tyre on a car look like? Which activities involved in changing the tyre are logic-driven? Which activities are resource-driven? Edinburgh Business School Project Management . It is very important that the precedence diagram is accurate and represents the activities that will actually be required. A precedence diagram is simply a representation of the various activities that are involved in a particular project. These are relatively straightforward in simple operations but can be highly complex on large projects. Most precedence considerations are based on logic constraints or on resource availability.Module 5 / Project Time Planning and Control nal completion date is retained and resources are not levelled. and the project manager can see where additional resources are required and for how long. Start Put water in kettle Put tea in teapot Put milk in cup Boil kettle Put boiling water in teapot and brew Pour tea in cup Drink tea 3 2 1 Hands required Activity within resource limits Maximum 2 hands available for a single person Resource overallocated Figure 5.13 Resource over-allocation ♦ Time Out Think about it: precedence diagrams. the precedence diagram should be the most logical sequence of activities required in order to meet a particular outcome.13. Generally.

it allows complex replanning calculations to be carried out quickly and accurately. Modern software allows networks to be generated quickly and efficiently. The individual components are then combined to produce a cost total. Quality planning is perhaps the most complex of the three success criteria variables. The budget plan is then compared with actual expenditure as the basis for cost variance analysis. This section does not attempt to develop a knowledge of computer project planning software. the process of planning splits depending upon the aspect being considered. This allows the planner to calculate individual start and finish times for each activity and to estimate an overall project completion date. The DMS Concept Scheduling is the process of calculating individual activity times in order to Project Management Edinburgh Business School 5/29 . this section seeks to develop an understanding of the basic mechanics of network analysis so that its main procedures and applications are appreciated.2.and resource-driven? ♦ 5.Module 5 / Project Time Planning and Control • Which are both logic. virtually all scheduling and network analysis is carried out using computers. Instead. It is generally easier to plan and control quality in highly mechanised repetitive processes. usually in the form of some kind of budget plan for the project. and then assigning durations to these activities. Cost estimating. Using manual calculations. 5. The complexity of quality planning varies depending on the industry and discipline being considered. Today.6 The Draft Master Schedule (DMS) Introduction Once the PLE is in place. Quality planning and review are covered in more detail in Module 7. This state of affairs has not always been the case. Each system is different and offers different capabilities. Up until the late 1980s. the processes involved were long and time-consuming.2. the next stage in the process is networking and scheduling. planning and control are discussed in more detail in Module 6. such as making vehicles.2. the cost planning process consists of isolating individual cost packages within the project and calculating an accurate cost estimate for each one. than it is in highly diversified non-repetitive processes such as construction. companies employed large teams of planners who were responsible for manually developing and maintaining networks analyses for the projects that were being run by the organisation. More importantly.2. Planning techniques applied specifically to time control are known as scheduling. Basically. The remainder of Module 5 is concerned with project planning from the point of view of time planning and control.5 Separate Time. Cost and Quality Planning At this point. Networking is the process of defining the project logic in terms of the sequence of required activities.

Any delay in these activities will delay the following activities. Generally. use in checking contractual compatibilities. By considering each activity in relation to all the other activities it is possible to identify a start and finish window for each activity. providing data for any necessary resource levelling. Most of the activities will have some leeway as to when they start and finish (this leeway is called float) – but some will not. replan as necessary. use in cross-checking with subcontractor schedules. identify those activities with no float (critical path). By using specific analysis techniques. The end result of the scheduling process is the Draft Master Schedule (DMS). namely the path through the project that has the longest total activity duration. the items with no float in their activity windows are critical. providing the basis for re-planning options and trade-off analysis. providing the data for earned value analysis. identifying logic incompatibilities. form a Draft Master Schedule (DMS). sections of the project and for the project as a whole. identify the start and finish window for each activity. It is therefore the path of activities that determines the overall project completion date. and some combinations of delays could delay the overall completion of the project because some items could well be on the critical path. The most obvious uses for a DMS are for: • • • • • • • • • • • • identifying an overall project completion date. The DMS also identifies the project’s critical path. it is also possible to calculate start and finish times for groups of activities. acting as the basis for the implementation of risk management system. It is necessary to: • • • • • • • 5/30 assign durations to each activity. identifying key completion dates as a basis for progress planning. The DMS is a complete network analysis. Edinburgh Business School Project Management . showing start and finish times for each activity. or programme. identifying order and delivery dates for supplies. for the project. The basic process involved is to assign durations to each activity in the PLE. rationalise resources. identifying notification and start dates for nominated (client defined) subcontractors. providing data for the establishment of possible consequences of delay. refine the draft to form a Project Master Schedule (PMS). Scheduling therefore involves the following primary stages.Module 5 / Project Time Planning and Control allow an estimate for the completion date to be calculated.

PERT is therefore a probabilistic approach. and time-savings are required. It is easy to produce and easy to understand. nearly empty or filled to the recommended level. a US engineer who made the charts famous in the 1920s. It is presented to the client as one possible solution for the planning and control of the project. respectively. Despite its limitations. The replanning process is just as important as the initial planning process. provided that it contains the same amount of water each time. Change notices and variation orders will be issued throughout the project construction phase. Both approaches use an essentially similar concept. etc. Replanning tends to be a complex operation and is one of the main reasons why project planning software. CPM is a deterministic approach. Client requirements may change. In both deterministic and probabilistic cases. or it is too heavily resourced and has to be reduced in cost. It may or may not be acceptable. Gantt charts are named after Henry Gantt. There might be a maximum time. the likely time can be expressed in terms of a probability. planning regulations may alter. Gantt Charts The oldest and simplest form of the project network or plan is the Gantt chart or bar chart. For these reasons. there are two primary alternatives.Module 5 / Project Time Planning and Control In terms of assigning activity durations. PERT is used where component activity times cannot be accurately calculated or are not known. In such cases. along with the fact that most people are familiar and comfortable with them. but the calculations used and applications of each are quite different. Replanning is often necessary because the Draft Master Schedule which is produced by the Project Manager is just that – a draft. These times would correspond to the kettle being full. as opposed to manual methods. Typical reasons why it may not be acceptable would be because it finishes the project too late. or where the amount of water that has been put in the kettle is not known. there will be immediate requirements to change it. the calculations are used as the basis for evaluating the individual and overall times that are applicable to the project. These are based on the critical path method (CPM) or on the programme evaluation and review technique (PERT). As soon as a schedule has been produced. They are not simply used once to arrive at overall and individual completion dates. the Gantt chart consists of: • Project Management a horizontal time scale. are used almost exclusively. a minimum time and a most likely time. In its simplest form. the Gantt chart remains a popular method of presenting project plan information. The kettle will always take around the same time to boil. Gantt charts are often used for reporting and communication purposes. Edinburgh Business School 5/31 . they are used further as the basis for the replanning process. which is an essential feature of most project planning and control. such as making a cup of tea with a faulty kettle that may or may not work properly. This means that the activity durations can be calculated or are known with reasonable accuracy. An example of a deterministic string of activities would be the calculation of the time required to make a cup of tea.

The Gantt chart detailed in Figure 5. More sophisticated Gantt charts can be drawn to show critical activities. Gantt charts monitor progress effectively. with the project still on schedule.5 and 1.5 days respectively. C and D should be started and completed one after the other and have durations of 2.Module 5 / Project Time Planning and Control • • a vertical list of tasks. floats and dependency relationships. The level of detail of each activity displayed is determined by the time scale.15 Updated Gantt chart The striped bars show that the task is complete and the heavy vertical line represents time now. a horizontal line or bar drawn to scale to represent the time needed to complete the activity. Time Activity A B C D 1 2 Days 3 4 5 6 Figure 5. 1.16 is for the construction of a bridge in line with the CPM worked 5/32 Edinburgh Business School Project Management .14. 1. Figure 5. activities A. Time Activity A B C D 1 2 Days 3 4 5 6 Figure 5. B.15 shows the above example updated after three days.14 Simple Gantt chart In the example shown in Figure 5.

16 Gantt chart for example of bridge construction example using early start and early finish times. For projects of a limited size and number of activities. In the example in Figure 5. Examples of milestone events may include dates for payment. Important project events are known as project milestones and these are often shown on Gantt charts as diamond symbols. dates for conclusion of a contract. which is described later in this section. or the date of project hand-over.Module 5 / Project Time Planning and Control 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 DAYS Figure 5. the opening of the bridge is shown as a project milestone.16. manually prepared Project Management Edinburgh Business School Mark out site Dig Foundations A Concrete Foundation A Cure Foundation A Dig Foundations B Concrete Foundation B Cure Foundation B Dig Foundations C Concrete Foundation C Cure Foundation C Erect Tower A Erect Tower B Erect Tower C Erect West Span Erect East Span Bridge opening ACTIVITIES Non critical activities TIME Critical activities Float Dependency 5/33 .

The activities (arrows) consume time and the events (nodes) are points in time.e. C). re-planning is difficult and can be performed more easily on an ‘activity on arrow’ (see later) schedule. 20. The overriding benefit of the network diagram is that it enables the planner to express visually the logic of a project plan by showing the dependency relationships between activities in a way that Gantt charts do not. A.Module 5 / Project Time Planning and Control Gantt charts provide an effective tool for planning and monitoring. 30 B 10 A 20 C 40 Figure 5. and they provide the information in the form of both Gantt charts and network diagrams (see below). 40) and activities are labelled with letters above the arrow or arc (i. However. and diagrams are not to scale in any way. and the circles (or nodes) represent events. The two most common types of network diagram are activity-on-arc (AOA) diagrams and activity-on-node (AON) diagrams.17 shows a typical AOA network. Used in combination. The events are therefore start and finish points for the activities. They require little training to produce and give a very easy to understand visual image. 5/34 Edinburgh Business School Project Management . for a number of reasons. Network Diagrams A network diagram is simply a precedence diagram with activity durations added to it. in paper form they do not show complex resource requirements and demands. The concept of the critical path and the use of float are useful techniques to identify project priorities. Project planning software packages have made it much easier to update and reschedule project plans. the arrows (or arcs) represent activities or tasks. they do have serious limitations when it comes to larger projects with complex dependency relationships. as follows: • • • • Gantt charts do not show the underlying links and interdependencies between activities. 30. In AOA diagrams. B. they show primarily ‘finish to start’ relationships. General rules for both types are that arrows run from left to right for start to finish of a project.17 Activity-on-arc (AOA) network diagram Figure 5. Events are labelled with numbers in the nodes (such as 10. these will effectively communicate the project plan.

The dummy activity between nodes 30 and 40 represents this logic continuity. Nodes 30 and 40 represents the finish of activities B and C respectively. The logic is that activities B and C cannot start until activity A is complete. A characteristic of AOA diagrams is the use of dummy activities. Activity E is only dependent on the completion of activity C. The completion of A defines the earliest start time for activities B and C. To continue the example above.18 is that activity D cannot start until activities B and C are both finished.Module 5 / Project Time Planning and Control In our example in Figure 5. before it itself can start. other than that it needs the equipment that C is using.2.18 could represent the activities set out in Table 5. An example of this could be where equipment needed by activity D is already in use on activity C. The next step is to add the activity durations (see Figure 5. 40 B 10 A 20 C 30 E 50 D Figure 5. Figure 5. Node 20 represents the finish of activity A and the start of activities B and C. As discussed earlier in this module. these are generally based on company records and experience of doing similar work in the past.1 could represent the following example activities. The layout of the diagram shows the dependency relationships between activities. Activity D is not dependent on activity C. These are the individual time estimates for each activity to be completed.19). Activity B involves laying pipework and activity C involves laying electrical cabling. Dummy activities are not actual activities and usually do not consume any time.17. Table 5. Activity A involves digging a trench.18 Activity-on-arc (AOA) network diagram with dummy activity The logic of the dummy activity shown in Figure 5. They are simply included in order to maintain project logic.1 Activity A B C Possible activity identities Description Dig trench Lay pipework Lay electrical cabling Table 5. The pipework and cabling can be done at the same time. but both have to start after the trench has been excavated. Project Management Edinburgh Business School 5/35 . These are shown as broken lines and represent dependencies. node 10 represents the start of the project and indeed the start of activity A.

Table 5.19 Activity-on-arc (AOA) network diagram with activity durations Information is added to the network diagram in order to make it a more useful tool.Module 5 / Project Time Planning and Control Table 5. The estimated duration for each activity is added below the arrow representing that particular activity.3 Activity A B C D E Final logic table Description Dig trench Lay pipework Lay electrical cabling Fill in trench Connect cable to equipment Dependency A A B&C C Duration 2 days 3 days 1 day 1 day 2 days B D START A FINISH C E Figure 5.3.19. durations are measured in days.2 Activity A B C D E Further activity identities Description Dig trench Lay pipework Lay electrical cabling Fill in trench Connect cable to equipment Dependency A A B&C C 40 10 A 2 B 3 20 C 1 30 E 2 D 1 50 Figure 5. but must be consistent throughout the diagram – in the case of Figure 5.20 Activity-on-node (AON) network diagram with no activity durations 5/36 Edinburgh Business School Project Management . The duration will be the most appropriate time scale. The final logic table is therefore as shown in Table 5.

4 The AON diagram for the activities shown in Table 5. The main difference between AON and AOA diagrams is that the AON diagrams use boxes at the nodes to represent the project activities instead of the arrows between the nodes.Module 5 / Project Time Planning and Control Figure 5. Another significant difference is that there is no need for dummy activities in an AON diagram. Like AOA diagrams.4 Activity A B C D E F G H I AON activities Description Buy new piping Buy new washing machine Buy new electrical cables Remove existing electrical cables Remove existing washing machine Remove existing piping Fit new electric cables Fit new piping Install new washing machine Dependency – – – – – E D&C A&F B&G&H B C G START D E A F H I FINISH Figure 5. The arrows in this case only indicate the dependency relationships between activities. Project Management Edinburgh Business School 5/37 .21. the activities are labelled with letters.4.22 shows how the same logic would be represented using an AOA diagram. This represents the same activities and logic as shown in Figure 5.4 is given in Figure 5. Table 5.18. Consider the example given by Table 5. There is no doubt that AON networks increase the power to cope with large and complex projects with complicated constraints between activities.21 AON diagram for the dependencies in Table 5. AON diagrams have evolved from AOA diagrams with the increase in the use of computers to drive project plans.20 shows a typical AON network. Activities can be carried out in parallel unless specific dependencies are stated. This gives several alternative paths through the network. which shows a series of activities together with descriptions and dependencies where appropriate. Figure 5.

however.25 shows a start to start relationship. A time lag may be written on the arrow to indicate that Activity B cannot start until a specified period after activity A has finished. and the four permutations are set out next: • Finish to start relationship Figure 5. for example. There are. the concrete slab was pre-cast rather than poured on site. it would be ready-cured and could be loaded immediately. other possibilities.Module 5 / Project Time Planning and Control B I C G D E A F H Figure 5. An example of this is two people working together to paste and hang wallpaper. The hanger Edinburgh Business School Project Management • 5/38 . There will generally be a definite relationship between the start of an activity and the finish of an activity that immediately precedes it. for instance. where activity B cannot start until activity A is complete.22 AOA corresponding diagram Most AON network analysis uses a standard layout for the diagram and for the information that is contained in the node itself. The most common relationship is a so-called ‘finish to start’ relationship. This indicates that the preceding activity has to finish before the dependent activity can start.23 Typical AON data representation Within AON.23 1 3 5 2 4 Figure 5.24 shows a finish to start relationship. where curing or proving times are required such as the hardening time after a concrete floor slab has been poured. A lag would appear. Start to start relationship Figure 5. The standard labelling system of nodes is shown in Figure 5. Other activities do not require lag times – if. Activity B can start as soon as activity A has started. This is the most common and simplest type of relationship. the relationship between the start and finish times and the dependencies of each activity has to be defined.

There could be a time lag in this kind of arrangement. this type of relationship can contain time lags. Activity B cannot finish until activity A has started.Module 5 / Project Time Planning and Control A B Figure 5. A B Figure 5.26 Finish to finish relationship • Start to finish relationship Figure 5. The painter cannot emulsion-paint the paper until it has dried sufficiently to allow him to do so. for example.26 shows a finish to finish relationship. The lag here would be the drying-out time of the paste and wallpaper. This arrangement could contain a time lag.27 shows a start to finish relationship. An example of this type of arrangement is a hand-over or acceptance procedure being dependent upon the start of a preceding activity. An example is a painter following on behind the wallpaper hangers. where there is a time lag in the production or shipping of the components prior to distribution. The components could be shipped in phases. Critical Path Method (CPM) Project Management Edinburgh Business School 5/39 . Again. This would occur. activity A could be the production of a component and B could be the distribution to a buyer. but it is not possible to complete the distribution until all the components have been made. A B Figure 5.25 Start to start relationship • Finish to finish relationship Figure 5.24 Finish to start relationship can start as soon as the paste-applier starts. Activity B cannot finish until activity A has finished. For example.

The basic CPM process is to: 1 2 3 4 5 6 7 assign durations to each activity. as it is the durations taken on individual activities that determine the start and finish dates of events and activities throughout the network. form a Draft Master Schedule (DMS). rationalise resources. The amount of time needed to complete each activity is calculated and added to the precedence diagram.Module 5 / Project Time Planning and Control A B Figure 5. For some activities. CPM is a deterministic approach to project planning. although some organisations use national or company standards. there may be no record or published information from which to calculate the duration. The duration of the critical path defines the expected duration of the project under normal circumstances. a duration estimate can always be made. The only determinant is breaking down the process into sufficiently fine detail that individual activities can be isolated and time values added. In theory. In practice. CPM is activity-oriented. refine the draft to form a Project Master Schedule (PMS) Each of these is described in turn next. a WBS progression. This is usually based on experience. large or complex operations that cannot be accurately time-estimated are broken down into smaller and smaller units. It uses estimates of activity durations that are known (reasonably accurately).27 Start to finish relationship The critical path through any network diagram is the longest path. In these cases. i. The most popular method for producing a draft master schedule (DMS) from a precedence diagram or network is to use the critical path method (CPM). it may be possible to calculate a deterministic estimate using one of five techniques: • Modular technique In the modular technique. if the unit is small enough. identify the start and finish window for each activity.e. 1 Assign durations to each activity. it is not always possible to isolate every single component Edinburgh Business School Project Management 5/40 . replan as necessary. identify those activities with no spare time contained within the duration (critical path). The critical path method (CPM) was originally developed in 1960 by the DuPont corporation in order to allow the programming of maintenance work during chemical plant shut downs.

Modelling technique The modelling technique makes use of data from known past activities. or works that involve similar processes on similar items. The standard (or benchmark) time is known from previous work. Even with minute analysis of a problem. Computerised database estimating system (CDES) technique Estimators are increasingly using software packages to improve estimating reliability and accuracy. ground access conditions. An example is the time required to replace electric-power conducting cables between transmission towers. the engineer can make a reasonable guess on how long it will take to repair a type 22. Unintentional damage to a transmission tower or the discovery of a defective length of cable would be more important in such circumstances because the time involved in carrying out repairs or obtaining a replacement cable could be considerable. A computer engineer might have repaired hundreds of computers over the past five years.Module 5 / Project Time Planning and Control activity that is involved in the overall process. The approach is often used when estimating the times required for maintenance works. the estimated durations are made on the basis of recorded times for similar works. • Benchmark technique In the benchmark technique. From experience of knowing how long it is likely to take to fix a type 21. This approach is often used in repetitive works. it is generally not possible to consider every possible activity that may be required in order for the project to be completed. From this experience. These variables may also be given variable weightings. A simple model is assembled and a range of variables that affect cabling time are input. A computerised database estimating system (CDES) is a specialist software package the builds up time estimates using a database of standard times for any given activity. The project manager then uses this information in estimating the times required for new works. There will always be something that is not foreseeable and that therefore cannot be scheduled. Geographical location may be a minor consideration around cities but it could be extremely important where the works are a long way from any access roads. However. The data is used to generate an approximation for an unknown activity where the work involved lies somewhere between the works involved in two or more known activities. he or she knows that a type-21 PC (say) takes on average a certain time to repair. These could include likely weather conditions. There is always an element of guesswork in this type of approach. plant availability and geographical location. The activity duration is usually estimated based on the individual activity durations of 5/41 • • Project Management Edinburgh Business School . and from knowing the basic differences between a type 21 and a type 22. within limits it can be a useful tool for estimating activity durations based on known performances from past experience. The main consideration here is the range of unknown elements that can influence the planning and execution of the project. The overall duration estimate is based on the average or benchmark time multiplied by the weighted variable model total.

where no standards for similar works are available. the dependent variable and the independent variable. or there is no point in starting on it.Module 5 / Project Time Planning and Control • all of the various sub-elements. These durations are modified or adjusted to meet the individual estimates of the organisation concerned. The length of tunnel does not depend on time. so does time required. The source of the planning data is a very important consideration. Parametric technique The parametric approach applies where the activity cannot be broken down any further. activity durations can only be estimated with limited accuracy. In addition. because the tunnel has to be complete. In reality. The plan can only be adhered to if these resource levels are provided and maintained for the duration of the project. Questions: • What are the obvious RFDs that affect resource availability within project teams. if the length is doubled the time required to dig the tunnel will double (all other factors being equal). The individual sub-element durations are stored in the database. and resource availability is rarely at the optimum assumed level. the project plan itself is based on an assumed level of resources. As length increases. The use and application of CDES packages is discussed in more detail in Module 6. An example is digging a tunnel for a new sewage system. In this case. and how might these drivers vary over the course of the project life cycle? Which of these RFDs originate from within the project? Which RFDs originate from outside the project? What is the overall relationship between internal and external RFDs? • • • ♦ 5/42 Edinburgh Business School Project Management . There is a functional relationship between the dependent and independent variables that can be plotted mathematically. The relationship may be linear or curvilinear. Factors that affect resource availability are sometimes referred to as resource fluctuation drivers (RFDs). Even if activity durations are estimated very accurately. length is the independent variable and time is the dependent variable. There will be a functional relationship between the time required to dig the tunnel and the length of the tunnel itself. and where the project manager has no experience of similar works on which to base a realistic estimate. The process isolates two variables. time does depend directly on length. The planning process itself is only as accurate as the data that is used in generating the precedence diagrams and schedules that form the backbone of the planning process. Generally. the actual time required to complete the activities (as opposed to the planned times) may vary because of fluctuations in a whole range of factors that determine completion times. They are an important consideration in project management as resource availability and project team staffing are central to project success. However. There is therefore a functional relationship between time required and length of tunnel. ♦ Time Out Think about it: sources of planning data.

The forward pass gives the earliest start time (EST). Two important event times are required. the activity durations are added to the precedence diagram. In order to establish the critical path.29 Activity duration values Project Management Edinburgh Business School 5/43 .29. 16 E 4 8 F 4 G 4 A B 4 4 H 4 2 C 4 D 2 I J 8 4 1 L K Figure 5.28 represents the work involved in replacing the central server and PC systems to a small office.Module 5 / Project Time Planning and Control 2 Identify the start and finish window for each activity. as his is shown in Figure 5. Remove old hardware Install new cables Hardware test and hand-over Install new software Seek approvals A Remove old furniture B Check wiring E Supply and install new furniture F Supply and install new hardware G Commission new software H C D Reinstall old files I Staff training Software test and hand-over Safety inspection J L K Figure 5. the backward pass gives the latest event time (LET).28 Precedence diagram for the replacement of PC systems The precedence diagram shown in Figure 5.

Where an activity is dependent on two or more predecessors. The start of F–G is therefore the latest finish of either E–F or D–F.30 Forward pass (earliest event times) EET is sometimes expressed in two forms.30.Module 5 / Project Time Planning and Control The next stage (the ‘forward pass’) is to calculate the earliest event time (EET). It is possible to split EET into earliest start time (EST) and earliest finish time (EFT). In this case. For example. This involves working back from the right-hand end of the network and calculating the latest event times (LETs). where one or more activities follow a given activity. 5/44 Edinburgh Business School Project Management . This is the earliest time at which each activity can start. It is governed by the finishing time of any dependent preceding activities. The EET values are shown in Figure 5. activity F–G is dependent upon both E–F and D–F. The critical path is then calculated by carrying out a backward pass. The EET of each activity is simply the finishing time of the preceding activity. the EET of that activity is the later of the two alternatives. This approach is used in the worked example that follows this section. 0 4 A 4 4 B 10 16 E 4 D 14 8 26 4 F 30 4 G 34 H 4 38 2 C 6 4 I 2 40 J 8 4 1 L 45 44 K Figure 5. the LET for the activity is the earlier of the alternatives. This is the latest time at which an activity can finish without affecting the starting time of the following activity or activities. The backward pass gives the LET times shown in Figure 5.31 for our example. it cannot start until both of these activities have finished. The EET is calculated by carrying out a forward pass through the network. since both must be finished before F–G can start.

The critical path is the longest path through the system and the one that has no float. That for our example is shown in Figure 5. There is.32. Edinburgh Business School Project Management 5/45 .31 EETs and LET from forward and backward passes The network now contains activity durations (values on arrows). The critical path directly determines the overall completion date of the project. therefore. Float therefore represents an important planning safeguard. It is therefore possible to identify when each activity starts and finishes and also the overall completion time for the project. a float of four days on activity E–D. This represents spare or slack time between the EET and the LET for a given activity. A delay to any of the critical-path activities will result in a delay to the overall completion date of the project. Given that E–D takes four days to undertake. It represents buffer time within the system where delays can be absorbed to some extent. The float can be eroded if required without affecting the start time of the following activity. because it is preceded by both B–E and C–E. the path through the network that has zero float is the critical path. the time required to complete E–F can be reduced by up to 4 days before E–D becomes critical. it will affect the overall completion date of the project. Looked at another way. The earliest that this activity can start is day 10.Module 5 / Project Time Planning and Control 0 0 4 A 4 B 4 4 10 10 16 E 4 D 6 8 26 26 4 F 30 30 4 G 34 34 H 4 38 38 2 C 6 4 I 2 40 40 14 18 J 8 4 1 L 45 45 44 44 K Figure 5. earliest event times (left-hand boxed numbers) and latest event times (right-hand boxed numbers). the project cannot be completed in less than 45 days. The latest that E–D can finish is day 18 – if it finishes any later than day 18. showing that on await estimates. 3 Identify those activities with no spare time contained within the duration (critical path). By way of contrast. E–D can therefore extend for up to a further four days without affecting the completion date for the project. The difference between the EET and LET is the float.

Module 5 / Project Time Planning and Control 0 0 4 A 4 B 4 4 10 10 16 E 4 D 6 8 26 26 4 F 30 30 4 G 34 34 H 4 38 38 2 C 6 4 I 2 40 40 14 18 J 8 4 1 L 45 45 44 44 K Figure 5. it may be possible to: • import new (additional) resources and allocate them to the activity. It is sometimes possible to rearrange the original project logic and sequence of activities. The estimated date for completion may be unacceptable.32 Critical path activities 4 In terms of reducing the time to overall completion. • overlap or phase activities (if possible). Thus. • increase the workload demand on individual team members. • use any activity spare time reserves. • speed up any associated approvals and consents. Edinburgh Business School Project Management 5/46 . Alternatively. and the client may authorise an increase in costs in order to allow the project manager to speed up activities. It may be possible to go back to the original precedence diagram and re-evaluate the logic. Replan as necessary. the critical path activities are the ones that should be examined to see whether any improvements in duration could be made. • temporarily shuffle resources from other activities. rearrangement will not be possible because the critical path is already the optimum one. • decrease the amount of work required (cut corners). and hence develop a newer and shorter critical path. a project manager would concentrate on the critical path activities for the project – there is clearly no point in speeding up non-critical activities. Most often. • re-evaluate the activity sequence and logic (if possible). These are classic responses to project replanning where cost increases have to be avoided. • negotiate increased resource provision with subcontractors (where appropriate).

This is usually possible in the short term if staff are requested to make an increased effort in order to allow the project to overcome a difficult period. Resources should be levelled in order to make optimum use of them wherever possible. The precedence diagram. plant. Large peaks and troughs. 5 Rationalise resources. It is therefore important to try to smooth out resource utillisation as much as possible. as the troughs will lead to idle time. The PMS is produced as a refined version of the DMS. It may be possible to overlap sections of work. but so long as these increases are contained within float limits. it is also presented to the client for comment. and concentrations of use. This approach allows for a more detailed control of float. It is the first step in the process of producing a project master schedule (PMS). Figure 5. 6 Form a Draft Master Schedule (DMS).34 and is represented as an activity-on-node diagram in compliance with popular convention. It is advisable to avoid short-term troughs in between long-term peaks. LET can be considered in terms of latest start time (LST) and latest finish time (LFT). The DMS is not intended to be a final network.34. It contains firm times and dates for all activities. EET can be considered in terms of earliest start time (EST) and earliest finish time (EFT). as should gaps in utilisation. Project Management Edinburgh Business School 5/47 . Table 5. It is not usually possible to hire any of these resources on an hourly or even daily basis. Often. This increases completion times on non-critical paths.5 gives some basic activity information for the same project. together with confirmed project logic. People. materials and equipment tend to have minimum hire periods. of course) or reduce the waiting times that have been allowed for approvals. It is usually presented to the project team in preparation for a subsequent brainstorming session. Alternatively it may be possible to reduce or omit some work sections (with the approval of the client. mapped outs Figure 5.Module 5 / Project Time Planning and Control It may also be possible to increase productivity within the system without cost increases. It splits EETs and LETs into more detailed components. provided the overall logical evaluation allows this. The DMS is the first attempt at scheduling the project. Refine the draft to form a Project Master Schedule (PMS). The durations taken are for indicative purposes only and are not intended to be realistic. The PMS is a project document that is recognised and used by all members of the project team. of individual resources should be avoided. 7 CPM Worked Example This example expands on CPM theory. The most common response is to transfer resources from non-critical activities to critical activities. is given in Figure 5. showing the logical progression of activities.33 shows a sketch of a project that involves the building of a new bridge across a valley. Project resources tend to be relatively inflexible. it is a draft for discussion. they will not result in any overall increase in the project completion date.

The forward pass begins with the first activity box (the start box in Figure 5.33 Table 5. In our example. and the calculation of float.Module 5 / Project Time Planning and Control East span Tower A Tower B West span Tower C Foundation A Foundation B Foundation C Figure 5. The aim of the forward pass is to establish the earliest start time (EST) and the earliest finish 5/48 Edinburgh Business School Project Management .34) and progresses forwards from left to right until the last box is reached. the backward pass. we are isolating EST and EFT rather than EET. These are the forward pass.5 Activity A B C D E F G H I J K L M N O Sketch of bridge across a valley Activities and durations for the bridge project Description Mark out site Dig foundation A Concrete foundation A Cure foundation A Dig foundation B Concrete foundation B Cure foundation B Dig foundation C Concrete foundation C Cure foundation C Erect tower A Erect tower B Erect tower C Erect west span Erect east span Duration (days) 5 3 2 8 6 4 15 4 3 10 1 3 2 5 4 Analysing the network diagram to determine the critical path involves three simple steps. The longest path through the network will have no float time between the earliest and latest event times and this path will therefore be the critical path for the project.

The LFT of each remaining activity is the same as the LST of its immediate successor.34 Network diagram showing dependencies for bridge project time (EFT) for each activity. Where an activity has more than one immediate predecessor.35 shows the forward pass results for the bridge project.Module 5 / Project Time Planning and Control 3 B 2 C 8 D 1 K 5 N 0 Start 5 A 6 E 4 F 15 G 3 L 4 O 0 Finish 4 H 3 I 10 J 2 M Earliest start time Activity duration Earliest finish time Activity description and letter code Latest start time Latest finish time Float Figure 5. The basic rules are: 1 2 3 4 5 The EST for the first activity is zero. Completion of the forward pass has shown that the total project duration is 38 days. The EFT for each activity is calculated by adding the duration to the EST. The rules are: 1 2 3 4 The LFT for the last activity is the same as its EFT. Where an activity has more than one immediate successor the LFT is the lowest of the LSTs of the immediate successors. The EST of the next activity is the same as the EFT of its immediate predecessor. through the network diagram. This time the process proceeds from the last activity box and works backward. The next part of the procedure is to carry out a backward pass to determine the latest finish time (LFT) and the latest start time (LST) for each activity. Figure 5. The EFT of the last activity is the expected duration of the project. The LST for each activity is calculated by subtracting the duration from its LFT. or the date the project will commence. the EST is the highest of the EFTs of the immediate predecessors. from right to left. Edinburgh Business School Project Management 5/49 .

5 3 8 B 19 14 22 2 10 C 22 14 24 8 10 8 18 18 1 19 D 24 14 32 K 32 14 33 33 5 38 N 33 0 38 0 0 0 Start 0 0 5 5 5 5 6 11 11 4 15 15 15 30 30 3 33 38 0 38 0 0 A 0 0 E 5 0 11 F 11 0 15 G 15 0 30 L 30 0 33 33 4 37 Finish 38 0 38 O 5 4 9 9 3 12 H 15 10 19 I 19 10 22 12 10 22 J 22 10 32 22 2 24 34 1 38 M 32 10 34 Figure 5. Figure 5.Module 5 / Project Time Planning and Control 5 3 8 8 B 2 10 C 10 8 18 18 1 19 D K 33 5 38 N 0 0 0 Start 0 5 5 5 6 11 11 4 15 15 15 30 30 3 33 38 0 38 A E F G L 33 4 37 Finish O 5 4 9 9 3 12 12 10 22 22 2 24 H I J M Figure 5. L–N. F–G. G–L.36 Backward pass results for the bridge project Then next stage is to calculate float throughout and to identify the critical path. The critical path is the line through the network with zero float and is usually highlighted. Knowing the critical activities is important for the project team. It is calculated by taking the difference between the LFT and the EFT or the LST and the EST.35 AON network diagram for bridge project after forward pass The backward pass results for the bridge project are shown in Figure 5. If 5/50 Edinburgh Business School Project Management . These are the activities where delay in completion will cause delay to the project as a whole because there is no spare time available within them.36. E–F. The critical path is highlighted by the bold line through the network and comprises A–E. The critical path gives the project team the information needed to prioritise activities and to allocate resources in order to ensure that the critical activities remain on schedule. The float is the spare time available within activities throughout the project.37 shows the result of the backward pass and the float calculations for the bridge project network diagram.

calculate forward and backward pass values. most likely and pessimistic). those with little float) should be monitored and managed carefully. calculate project mean duration and standard deviation. It uses estimates of activity durations that are known (reasonably accurately). 5 3 8 B 19 14 22 2 10 C 22 14 24 8 10 8 18 18 1 19 D 24 14 32 K 32 14 33 33 5 38 N 33 0 38 0 0 0 Start 0 0 5 5 5 5 6 11 11 4 15 15 15 30 30 3 33 38 0 38 0 0 A 0 0 E 5 0 11 F 11 0 15 G 15 0 30 L 30 0 33 33 4 37 Finish 38 0 38 O 5 4 9 H 15 10 19 9 3 12 I 19 10 22 12 10 22 J 22 10 32 22 2 24 M 32 10 34 34 1 38 Figure 5. form a draft master schedule (DMS). specifically for use on the new fleet of ballistic missile submarines that were being built at that time. refine the draft to form a project master schedule (PMS) Edinburgh Business School 5/51 . As float is used up in non-critical activities. PERT is a probabilistic approach to project planning. it will put severe pressure on the project schedule and time must be saved from other critical activities to save the schedule. identify target completion date and calculate variance about target. identify those activities with no spare time contained within the duration (critical path). Program Evaluation and Review Technique (PERT) PERT was originally developed in the early 1960s by departments within the US Navy. calculate activity mean duration and standard deviation.e. The basic steps involved in a PERT analysis are to: • • • • • • • • • • Project Management assign three durations to each activity (optimistic. replan as necessary.37 AON network diagram for bridge project showing critical path after backward pass and float calculations The critical path may change through the life of the project. It is thus essential that the project planner is constantly on the lookout for these changes. PERT is event-oriented as it works on calculating the probability of events being completed within a given time. Near critical activities (i. rationalise resources. they may become critical. Project delays are normally caused by slippage on the critical path.Module 5 / Project Time Planning and Control a critical activity takes longer than anticipated to complete.

1 Assign three durations to each activity. This average can also be expressed in terms of an activity standard deviation.38 Three durations of a PERT 2 For example. the most likely duration and the pessimistic duration. a given train might make a journey in one hour.38). In PERT calculations. Examples of this kind of approach include research projects and (to some extent) transport systems such as train timetabling. the expected time for an activity is taken as an average of the optimistic.and worst-case scenarios. a group of train operating companies might be deciding on a new regional timetable. The average time over the course of the previous year might be one-and-a-half hours. This involves calculating average or likely running times for each train that is using the network and then trying to get the best blend of services running at any one time in order to make the most efficient use of the system. most likely and pessimistic times. The expected times are used as durations on a standard networking chart and the critical path is then calculated as in standard CPM techniques. please refer to the Quantitative Methods course. PERT durations are based on a beta distribution average. This gives three separate values: (a) Optimistic: 1. In order to do this. but also for best.0 hours. the likely journey duration of each service has to be calculated. (c) Pessimistic: 3. If everything goes well. For such a distribution.0 hours. Edinburgh Business School Project Management 5/52 . run by Edinburgh Business School.5 hours. For a more detailed exposition on the underlying statistical mathematics. This is necessary because it is not possible to calculate a deterministic duration for PERT activities. In PERT analysis. This involves a calculation for most likely time. if all the connections are wrong. Optimistic time Likely time Pessimistic time 1 -2 -3 A B 3 -5 -7 C Figure 5. (b) Most likely: 1. each activity is assigned three durations (see Figure 5. These are the optimistic duration.Module 5 / Project Time Planning and Control Each of these is discussed in more detail below. the average expected time is as shown below. it might take up to three hours. The sum of the individual durations for the critical path can then be used to calculate a project expected time and standard deviation. Calculate activity mean duration and standard deviation.

5 hours.Module 5 / Project Time Planning and Control • Expected mean time for each activity T= (a + 4m + b) 6 The formula for a beta average is: where a = optimistic time. The critical path is the longest path through the PERT network.0 hours. The project standard Edinburgh Business School Project Management 5/53 . the mean duration time is therefore 1.67 • As might be expected. Identify those activities with no spare time contained within the duration (critical path).0) 6 2. Thus we have that T= = (1. the average project duration is calculated by adding all the expected durations of each activity on the critical path. s= = (3. The mean duration for each activity is calculated using the formula for a beta average as detailed above. The critical path is the longest one through the PERT network.0 + 6. a = 1.67 hours with a standard deviation of 0.33 3 4 5 It is necessary to consider standard deviation as the spread of values around the most likely time. m = most likely time.0 = 1. For the train journey considered. and b = 3. using average expected mean times.0 10. The PERT critical path is calculated in exactly the same way as the CPM critical path. This is done in exactly the same way as under the CPM approach. Standard deviation for each activity The formula for a beta standard deviation is: s= (b − a) 6 For the train operating company example. Calculate forward and backward pass values.0 + 3. For the train operating company example. and this may not be symmetrical. Again. m = 1. Calculate project mean duration and standard deviation. and b = pessimistic time. this is carried out in exactly the same way as a CPM analysis.33.0 6. the beta average give greatest weighting to the most likely outcome. In a PERT approach. There is no float on this path.0) 6.0 6 = 0.0 − 1.0 hours. but using individual activity mean durations rather than deterministic durations.

Identify target completion date and calculate variance about target.0/2.0 standard deviation With a project mean of 35 weeks and a project standard deviation of 2. Events within 1 standard deviation of the mean will occur 68 per cent of the time. So the standard deviation for the network is the sum of the variances for each activity on the critical path. Events within one standard deviation below the average will occur 16 per cent of the time (50 per cent − (68 per cent of 50 per cent)).0 standard deviations below the average value. Events within 1 standard deviation above the average mean therefore occur 84 per cent of the time (50 per cent + (68 per cent of 50 per cent)). = 1. The variance for a distribution is the square of its standard deviation. the project manager will evaluate the probability that this project will be finished in 33 weeks. the project mean duration might be 35 weeks with a project standard deviation of 2 weeks. This is done by dividing the difference between the project mean duration and the target duration by the project standard deviation: Project mean target duration = 35 − 33 = 2 weeks Standardising mean difference yields Project mean difference = 2. as opposed to the project mean duration of (say) 35 weeks.0 Project standard deviation = 2.0 Standardised mean difference = 2.0. This 5/54 Edinburgh Business School Project Management . the lower target value of 33 weeks is exactly 1. The project manager will use the PERT technique to evaluate the probability of this target actually being achieved. Project mean duration = 35 weeks Project standard deviation = 2 weeks Target project duration = 33 weeks The difference between the project mean duration and the target duration is converted from weeks to standard deviations by standardising it. and the standard deviation for the distribution of activities represented by the network is the square root of the sum of the individual critical path variances. The target time of 33 weeks is the target that the client is looking for. If the client gives the project manager a target completion of (say) 33 weeks. Thus: Project mean duration = (all individual critical path activity mean durations) Project standard deviation = (all individual critical path activity standard deviations)2 6 For example.Module 5 / Project Time Planning and Control deviation is the sum of the squares of each individual critical path activity standard deviation. There is therefore a 16 per cent chance that the project will be completed by week 33 when the average is 35 weeks. From statistical tables it can be ascertained that the mean duration will be achieved on 50 per cent of occasions.

Replan as necessary.39. For example the three estimated for an activity might be: Optimistic: Most likely: Pessimistic: 2 days. Refine the draft to form a project master schedule (PMS).6.Module 5 / Project Time Planning and Control 7 is a low probability and would act as the basis for the project manager’s decision about whether to accept the challenge represented by the new timetable. In developing the shape and layout of the network. Where this kind of limitation occurs the proportional reduction in activity mean duration and standard deviation diminishes as the analysis continues. Rationalise resources. Replanning in PERT involves recalculating the average and standard deviation for each activity on the critical path each time the analysis takes place. There will usually be a minimum level to which the optimistic value can be reduced. most likely and pessimistic). The appearance of new critical paths has to be considered in exactly the same way as they are in CPM analysis. There must therefore be an activity A–B followed by two parallel activities which are B–C and B–D. Where there are several critical paths the same requirement for simultaneous critical path crashing occurs. it can be seen that there is an activity A–B and activities B–C and B–D. Form a draft master schedule (DMS). Using the same logic we can develop the simple precedence diagram shown in Figure 5. The data represent a single series of activities. PERT Worked Example Consider Table 5. Project Management Edinburgh Business School 5/55 . If the calculated probabilities for a given set of activities are not acceptable the project manager has to modify the activities so that the meet any minimum levels of success probability. PERT replanning is carried out in more or less the same was as in CPM analysis. 4 days. This section is carried out in the same way as in CPM analysis. Changes in critical path activity mean duration and standard deviation results in changes in the project mean duration and standard deviation. This section is carried out in the same way as in CPM analysis. This section is carried out in the same way as in CPM analysis. 4 days. 8 9 10 A further doubling of resources may reduce the most likely and pessimistic time further. 2 days. Increasing resources will probably affect all three time estimates (optimistic. but the optimistic duration of one day may be the lowest possible limit for this activity. A network can now be developed for these data. The project manager might double resources on the activity thereby reducing the time estimates (assuming a linear function) to: Optimistic: Most likely: Pessimistic: 1 day. 8 days.

39 Basic PERT logic network The next step is to calculate the average time and standard deviation for each activity. Substituting the values from Table 5.40. The project completion time will simply be the sum of the activities on the longest or critical path through the project network.0 = 2 6 = 0. for A–B: Average = (1 + 8 + 3) 6 = 12 6 6 = 2. Where there is more than one activity arriving at a particular point. we take the 5/56 Edinburgh Business School Project Management .7 produces the network plus annotations as set out in Figure 5. These activity average completion times are now used to develop an average project completion time. and b = pessimistic time. As before. likely and pessimistic times Optimistic time 1 3 2 3 1 4 6 1 Likely time 2 5 4 4 5 6 8 2 Pessimistic time 3 7 8 5 7 9 12 3 C A B E G D F Figure 5.33 Standard deviation = (3 − 1) Calculating similar values for the other activities listed produces the averages and standard deviations shown in Table 5. Thus.Module 5 / Project Time Planning and Control Table 5. these values can be calculated from: Beta average = (a + 4m + b) 6 (b − a) 6 Beta standard deviation = where a = optimistic time.6 Activity A–B B–C B–D C–E C–F D–F E–G F–G Basic optimistic.7. The forward pass is simply used to add up the time required to arrive at each point on the network. the critical path is identified by completing a forward and backward pass through the network. The average project completion time is the sum of the individual activity averages on the critical path. m = likely time. For a beta distribution.

8 1.0 5.42 it can be seen that the longest path is A–B.0 11.6 Figure 5.3 G 2.0 B 4.7 E 8.0 4.0 0.0 5.41 Forward pass results calculated The longest path through the network is the one where the earliest and latest event times are equal.2 4. Where there are two possible values for an activity. C–E.40 PERT network using beta average activity duration values larger of the two possible values.0 5.41.0 A 0.4 4.Module 5 / Project Time Planning and Control Table 5.42 for our example.3 19.4 6. as the end point is dependent upon the prior completion of both preceding activities.7 1. On this path there is no float.3 2. we take the earlier of the two.3 0.4 D 4. set out in Figure 5.3 G 2. The overall project average Project Management Edinburgh Business School 5/57 .7 Activity A–B B–C B–D C–E C–F D–F E–G F–G Beta averages and standard deviations Optimistic time 1 3 2 3 1 4 6 1 Likely time 2 5 4 4 5 6 8 2 Pessimistic time 3 7 8 5 7 9 12 3 Beta average 2. B–C. The difference between the forward pass (earliest times) and the backward pass (latest times) represents the difference between the earliest and latest times for each particular activity.0 B 4.0 4.0 2. From Figure 5.4 D 6.0 2. 7.0 E 8.2 8. The backward pass repeats the process. this time working back from the established completion date.0 0. The forward pass produces the earliest event times as summarised in Figure 5. E–G.0 F 12.0 4.7 6.3 C A 2.0 Beta SD 0.0 6.3 1.0 0.2 F Figure 5.7 C 4.

The values related to the longest path through the network have a direct effect on the completion date for the project as a whole.0 7. Table 5.3 days with a standard deviation of 1.3 2.2 F 12.0 0.0) √ = 1. It is now possible to derive a suitable target completion time.3 1.09 + 1.8 Activity A–B B–C B–D C–E C–F D–F E–G F–G Critical path activity mean and standard deviation values Optimistic time 1 3 2 3 1 4 6 1 Likely time 2 5 4 4 5 6 8 2 Pessimistic time 3 7 8 5 7 9 12 3 Beta average 2. It may be that there is a 21-day window before the next project has to be accepted for initiation. the project manager has to consider what the probability is of having the first project completed within that 21-day window.3 0.2 8.0 4.3 days.3) + (0.4 D 6.1 G 2.3 days Project standard deviation = (0. Before booking that next project.0 4.0 + 8.3 19.09 + 0. The project standard deviation is the square root of the sum of the squares of the critical path activity standard deviations.7 E 8.29 The project mean time is therefore 19.3 Figure 5.49 + 0.3) + (1.8: Project mean = 2.42 Backward pass results and network critical path established completion date is 19.0 + 5.0 0.0 2.3 A 0.3 19.0 B 4. the sum of the durations on the critical path.3 = 19.0 6.7 × 0.7) + (0.0 2.6 17.4 11.0 × 1.67 = 1. The 21-day limit therefore becomes a target time: 5/58 Edinburgh Business School Project Management .7 1.3 The project mean time is the sum of the critical path mean times.0)) = (0.0 0. For the data shown in Table 5.7 6.4 4.3 × 0.0 11.0 0.8 1.29 days.3 × 0. The project manager might have to look at likely completion times in order to make best use of (say) maintenance facilities.Module 5 / Project Time Planning and Control 7.0 C 5.0 11.0 2.0 Beta SD 0.0 4.0 4.0 5.0 + 4.

For example. in decorating a room. events within 1 standard deviation above or below the normal mean occur 68 per cent of the time. ♦ Time Out Think about it: networking. It can therefore be seen that there is a 91 per cent probability that this project will be completed within 21 days. Events within 3 standard deviations occur roughly 99 per cent of the time.70 days (mean difference) Standardised mean difference = 1.3 days Project standard deviation = 1. The likely requirement for replanning means that commercial software is normally used for network analysis. the latest it can start is set by the following activity. A standard deviation of 1. Both forms of analysis are commonly executed using commercial software.Module 5 / Project Time Planning and Control Project mean = 19. and then working out the earliest and latest event times for each activity. there is no float. Events within 2 standard deviations occur 95 per cent of the time. The time required to have ten rolls will therefore be around ten hours. and the sequence of critical activities through the network is the critical path.32 standard deviations The target completion time is therefore 1. It is a probabilistic approach and is more suitable where the durations of the individual activities cannot be accurately estimated. Activities where the earliest and latest event times are different are said to have float. The program evaluation and review technique (PERT) is an alternative. Candidates may calculate an approximate value for this probability using linear interpolation. Networking is the process of assigning durations to all the activities in the precedence diagram.29 = 1. rather than an actual stated completion date. The end result of a PERT analysis is a probability of completing by a certain given date.32 standard deviations above the mean represents a value of greater than 84 per cent (one standard deviation above) and less than 95 per cent ( two standard deviations above). Note: The value of 91 per cent above is determined from statistical tables. Where the earliest and latest times are the same. which represents slack time within the network. The project manager would probably take this as a sufficiently high probability to go and make a booking for the next project to be initiated. Alternatively candidates may express the probability as a range. it is possible to estimate from past experience that it will take one hour to hang each roll of wallpaper.70/1. Such an activity is therefore critical. These are not normally provided for examinations purposes. The earliest time that the activity can start is set by the preceding activity. The critical path method (CPM) is a deterministic approach.32 above the mean equates to about 91 per cent.29 Target completion time = 21 days Target completion time − Project mean = 21 − 19. Project Management Edinburgh Business School 5/59 . From statistical tables.3 = 1. It is used where the various network activity durations can be estimated with a reasonable degree of accuracy. For example 1.32 standard deviations above the project mean completion time.

5. the most common requirement for project replanning calculations concerns time and cost. Changes in requirements of these variables frequently occur. Project management is about optimising time. Stage 7 (project master schedule) is simply the end-result of the trade-off analysis where the draft master schedule is modified to meet the outcome of the trade-off analysis. things immediately begin to change. Performance is sometimes used to refer to a specific measurable aspect of quality. the client may change individual preferences. and then calculating the precedence logic of these activities so that a network can be produced using CPM or PERT techniques. the contractor may have to make programme changes. Questions: • • • What are the main differences between PERT and CPM? Which three individual durations are considered in PERT activity times. the overall cost required to complete it is generally increased. and the project manager has to be able to replan the project accordingly and provide revised estimates for the linked variables. The end result is a draft master schedule (DMS). As soon as the DMS and PMS have been established.Module 5 / Project Time Planning and Control The planning process stage 6 (replanning and the use of trade-off analysis) is considered as a subject area in its own right in sections 5. Change is a significant part of any project. and so on. it is not possible to consider any one of them in isolation.1 Introduction The preceding sections of Module 5 have considered project time planning. These three variables are intrinsically linked. If the time required to complete a project is reduced. If quality or performance is increased. The planning process is concerned with taking the project SOW and breaking it down through a WBS into separate work packages.3 Project Replanning Note: In the following sections. The design team may introduce new design requirements. Clients often ask for projects to be speeded up and need 5/60 Edinburgh Business School Project Management . In most cases. In practice.4 respectively. and how is an overall activity duration calculated? What is the significance of project mean and standard deviation in PERT analysis? ♦ 5. and the planning and control system has to be flexible enough to allow for and incorporate change accurately. this usually requires an increase in cost and (perhaps) time. The PMS defines the main time and date milestones that will apply to the project as it is originally envisaged. which in turn forms the basis of the project master schedule (PMS).3 and 5.3. cost and quality performance on projects. the terms ‘quality’ and ‘performance’ are used interchangeably.

reduce the overall activity duration) that one first. a project will have clearly defined time and cost performance at the start. In Figure 5.e. This usually represents the minimum or near-minimum cost value and the near-optimum time values. increasing in gradient as overall time for the project decreases. The client may ask the project manager to increase the resources on the project and complete in no more than 38 weeks.43. cost and quality success criteria. The analysis and execution of this time change. This will result in the typical negative time–cost curve shown in Figure 5. The curve will therefore be vertical.6 million. The project could move to a different position in terms of time and cost characteristics. as completion earlier may be critical to the business. for example. In most cases the specified outcome is fixed. a time–cost curve will typically have a starting point at the agreed tender or project price. and then crash (i.2 Crash Analysis In crash analysis. The project manager’s calculations may indicate that the project will take 43 weeks to complete at a cost of £2. If this assumption is made. and the relationship between the two can be plotted as a curve. This will allow the project to finish more quickly but will result in a cost increase. if time for completion is reduced. If a project manager is looking for different ways to achieve this. A typical curve for the time–cost function of a project is shown in Figure 5. Any further crashing will result in cost increases. is commonly known as crash analysis.Module 5 / Project Time Planning and Control to know how much of an increase in speed is possible and what it will cost. Generally. This of course assumes that performance or quality criteria are fixed. where a project manager produces a DMS that is not acceptable to the client. then cost can be considered as a function of time. and no further time will be saved. The project manager has to be able to calculate the optimum combination of resource increases required to meet this shortened project duration. this position is represented as point A and is typical of optimum time and cost considerations for most types of project. there will almost certainly be a requirement to increase resources. the most obvious way is to work out which activity can be speeded up at least cost.43. Generally. Crash analysis would be used. 5. This curve will reach a point where all critical-path activities have been speeded up as far as possible. namely quality. If it is assumed that the project is subject to the classical time. is fixed. In order to reduce the time estimate and save time on the project. the project will cost more as additional resources have to be introduced. Generally. no further time can be saved on the project. and so on. Project Management Edinburgh Business School 5/61 . Beyond this point. the project manager offers replanning advice based on the relationships between time and cost.3. then it is possible to consider time and cost as a function. The client may not be able to accept the 43-week duration. This will usually be the time and cost limits that were established as part of the statement of works and that have been translated into contractual terms and conditions when the contract was awarded. This is done most simply if we assume that the third variable. as is the case in most projects.43. followed by the next cheapest. and its attendant impact on cost.

important to remember that curves for cost–quality and quality–time are just as important. In this case. Point (C) represents the shortest time possible. One reason for this could be that all the critical-path activities have already been fully compressed. 5/62 Edinburgh Business School Project Management . Beyond point (C). no further time-savings are possible. provided that the third one is regarded as a constant. They allow the project manager to consider different scenarios when contemplating changes to time. in this case 10 weeks. The classical time–cost curve is one example of a trade-off curve. Point (B) is where the time allocated is reduced to 15 weeks. cost or quality performance. This is the agreed tender amount and the agreed project duration. point (A) represents the original starting point. however.Module 5 / Project Time Planning and Control Limit of analysis Cost (£) £100 000 Maximum trade-off point point (C) £100 000 Reduced time allocation point (B) Project starting point point (A) £60 000 £60 000 £50 000 £50 000 10 weeks 15 weeks 20 weeks 10 Beyond trade-off zone 15 Trade-off zone 20 Time (weeks) Fixed cost zone Figure 5.43. where the project will take 20 weeks to complete. The remainder of this subsection is concerned with time–cost trade-offs (crash analysis). Trade-off curves are widely used in project management as part of the replanning process. the tender amount is £50 000 and the project duration is 20 weeks. It is. They also allow the functionality between any two of these variables to be plotted. and the cost increases to £60 000. and cost increases to £100 000. Figure 5.43 Typical time–cost curve Thus.

check the critical path. Each of these steps is described in more detail below. Calculate the cost of crashing each activity. Add the duration for each activity. Methods for calculating these were covered earlier in the module. Additional resources may be immediately available at the same or greater unit costs. It is generally possible to establish crash costs for most activities in a project programme.Module 5 / Project Time Planning and Control The basic process involved in generating a time–cost (crash) curve is to: 1 2 3 4 5 6 7 8 define the project logic. calculate the cost of crashing each activity. calculate the most cost-effective crash sequence. In most crash calculations. The outcome of the PLE is an overall project precedence diagram. calculate the cost of crashing per unit time. the starting point would be a list of all the critical activities. which provides full information on the project. 1 Define the project logic. as this will simply increase costs while giving no time saving. The cost of crashing is a function of resource limits and availability. establish the project critical path. In most cases there will be a number of different activities on the critical path and therefore a number of options relating to which items to crash first Edinburgh Business School 2 3 4 Project Management 5/63 . This information is then used to generate the project WBS. These would be deterministic durations. There will be limits on the amount of resource that can be applied to any given activity. Establish the project critical path. based on either logicdriven or resource-driven constraints. but they are of obvious use in calculating the critical path from a network with specified durations. There is no point in crashing any non-critical activities. In terms of project crashing. crash the network up to crash limit. The crash cost for increasing the rate at which trenches are being excavated by machine would be the hire rate of bringing on another machine plus any other overheads such as driver costs and fuel. The forward pass and backward pass would then be performed. The PLE is then developed. generally based on past project records or on national standards or computerised database estimating system (CDEs). Programs generally cannot assist in PLE calculations and analyses. as identified by the forward and backward passes. add the duration for each activity. this would normally be done using a suitable computer program. or available later at the same or increased unit cost etc. the critical path is of primary importance. This involves obtaining the overall SOW. In practice. The crash cost of increasing the rate at which engineering production drawings are produced could be the cost of hiring additional design specialists or of renegotiated and increased fees with the original design consultants so that they will put more of their own people onto the project.

this will involve allocating additional resources to the activity and this in turn will lead to an increase in the cost of the activity. Cost of crashing per unit time Normal duration 6 5 4 4 3 Crash duration 4 3 3 3 2 Normal cost 10 000 15 000 12 000 20 000 32 000 Crash cost 20 000 35 000 37 000 40 000 58 000 Crash increase 10 000 20 000 25 000 20 000 26 000 Crash cost per week 5 000 10 000 25 000 20 000 26 000 Table 5.10 Activity A–B B–D D–E E–G G–H 5/64 Edinburgh Business School Project Management . D–E. E–G. The new cost allowing for full crashing will be £20 000. The sequence can be isolated relatively easily by converting the crash cost to a cost of crashing per unit time.9 lists a number of activities with normal and crash durations and costs.9 Activity A–B B–D D–E E–G G–H Crash costs example Normal duration 6 5 4 4 3 Crash duration 4 3 3 3 2 Normal cost 10 000 15 000 12 000 20 000 32 000 Crash cost 20 000 35 000 37 000 40 000 58 000 5 Table 5. However. For example. on more complex networks.10.Module 5 / Project Time Planning and Control and what the subsequent sequence should be.9. However. and a crash duration of four weeks. This is simple enough with a single path through the network. It would obviously be preferable to crash A before B if possible. This means that activity A–B costs £10 000 to complete working at planned speed and with planned resources. The cost of crashing per week will therefore be £5000 per week for Crash A and £12 500 per week for crash B. Table 5. Crash B may cost £25 000 and save 2 weeks. Calculate the cost of crashing per unit time. Activity A–B has a normal duration of six weeks. if the crash involves doubling the excavators involved in digging trenches. B–D. For the example given in Table 5. as the cost increase per unit of time is considerably lower. The cost of crashing for most activities can be calculated relatively easily. the cost of crashing per unit of time will be as shown in Table 5. If there is a need to increase the rate at which A–B is completed. The obvious order for crashing is therefore A–B. crashing one activity may reduce overall project time more than by crashing another activity. The normal activity cost is £10 000 and the crash cost is £20 000. then the activity can be speeded up to finish in a minimum of four weeks. G–H. Crash A may cost £10 000 and save 2 weeks. the cost of the additional excavator will be more or less the same as the original excavator. a number of additional factors come into play.

It is therefore important that the critical path is checked after each crash to ensure that it is still critical. this means that at some point the original critical path will no longer be critical. This would save the required four weeks at an overall cost increase of +£30 000. rising more and more steeply away from the origin (which represents original project time and cost). In some cases. As critical path items are crashed. The replanning process might only require a time saving of (say) four weeks. different scenarios can be given showing potential changes in time or cost in relation to the consequences of achieving them. because it will become shorter than one or more parallel paths through the network. the next lowest Edinburgh Business School Project Management 5/65 . producing a cumulative effect that is more and more costly. The crash sequence will usually start with the cheapest unit-crash-cost item and progress to the most expensive unitcrash-cost item. The curve should always rise more and more steeply as the unit crash cost increases for the later items. This will generally appear as a negative curve. Once this has been done. It is therefore essential that the crash sequence contains only those items that are on the project or package critical path. in which case it would be sufficient to crash the first two activities only. The other major consideration is the critical path. then the process has to be repeated so that a new critical path can be identified. it may not be necessary to crash the entire sequence. Once this kind of trade-off curve can be generated.11 Activity 1 2 3 4 5 A–B B–D E–G D–E G–H 5 000 10 000 20 000 25 000 26 000 2 2 1 1 1 10 000 20 000 20 000 25 000 26 000 +10 000 +30 000 +50 000 +75 000 +101 000 −2 −4 −5 −6 −7 7 Check the critical path. It now becomes necessary to crash both critical paths at the same time. two critical paths may appear. This involves identifying those activities on each critical path that have the lowest cost of crashing per unit time and then crashing them simultaneously.11 shows the most logical crash sequence and the corresponding cost increases for the project.Module 5 / Project Time Planning and Control 6 Calculate the crash sequence. In most cases. In practice. Table 5. And if a parallel path becomes critical before the crash limit has been reached. Cost of crashing per unit time with cumulative project cost and duration totals Crash cost per week (£) Time saved (weeks) Cost increase (£) Cumulative project cost increase (£) Cumulative project duration reduction (weeks) Table 5. the overall length of the critical path will reduce. There is no point in crashing non-critical items as any time saved on these items will not reduce the overall project or package completion date. it is no longer viable to crash a single critical path. If this occurs.

If more time is taken.Module 5 / Project Time Planning and Control pair is crashed at the same time. Once any critical path becomes fully crashed. then a double critical path forms with B–D and D–F. both sides have to be crashed by an equal amount for any net reduction in the overall completion date to occur. It therefore generates a negative curve with a shallow angle. Crash the network up to the crash limit. If this line is reduced by three days.45. There is no point in crashing alternative non-critical activities. • C–E and E–G (13 days) or C–F and F–G (7 days). The most common form of limitation is by critical path.44 Check critical path 8 In the example shown in Figure 5. The lowest cost will be established for a given time. the project cost may not reduce because of fixed or overhead costs. and so on. The crash limit is the point at which no further crashing of activities can take place. In order to reduce time. These are largely split into two alternative groupings. that is the end of the process. The next part of the curve is normally steeper. costs will have to increase as more resources will be required. All the activities on the critical path could be crashed and it still remains the critical path. Each event on the curve shows one crash or time–cost trade-off alternative for the client. for instance. The main points on the curve will be the following: • Optimum cost point This is the project starting point or ‘trough’ point. A crash analysis might. If double critical paths do form. it is clear that there are multiple paths through the network. • Maximum crash point The maximum crash point (point D) is the point at which all critical path activities have been crashed right up to their Edinburgh Business School Project Management 5/66 . 7 2 A 0 0 2 2 B 4 D 6 C 5 7 5 5 12 12 E 8 20 20 G 2 3 F 12 18 15 Figure 5. • First crash point This is the point (point A) to which the project can be crashed using the cheapest crash cost per unit of time for a critical path component. namely • B–C and C–F (10 days) or B–D and D–F (7 days). reduce B–C and C–F by up to two days. The same applies to C–F and F–G if C–E and E–G are reduced by more than five days. The crash curve will therefore adopt the classical profile shown in Figure 5.44.

and hence overall costs increase. Project Management Edinburgh Business School 5/67 .Module 5 / Project Time Planning and Control • limits.46. B–F. Limit of analysis Cost (£1000) 250 Crash D and maximum trade-off point Crash C 190 Crash B Crash A 130 110 100 Optimum cost point (project starting point) 13 Beyond trade-off zone 14 16 Trade-off zone 18 20 Time (weeks) Fixed cost zone Figure 5. Crashing these will result in cost increases but no time savings because the items are non-critical.45 Classical cost–time trade-off curve 5. This area corresponds to the vertical section of the curve. continue to accrue. The only other items that can still be crashed after this are noncritical ones.3 Crash Example Consider a worked crash example.12 shows a range of activities together with normal and crash duration values and normal and crash costs.3. G–H and H–J and the critical path is shown in Figure 5. Table 5. contributions to the centre and so on. F–G. Fixed overhead curve This is the region in which additional time is allowed for the project although no extra resources are injected. Fixed overheads such as security. The critical path activities are A–B.

46 Critical path for trade-off data The critical path is calculated by developing a forward and backward pass as previously. The project manager might then be asked to reduce the overall project completion date as much as possible.12 Activity Trade-off data Normal duration (weeks) 4 2 6 5 4 4 3 6 6 5 4 3 Crash duration (weeks) 3 1 4 3 1 3 2 4 5 4 2 1 Normal cost (£) 10 000 20 000 30 000 10 000 100 000 3 000 10 000 10 000 20 000 10 000 200 000 80 000 Crash cost (£) Cost of crashing per week 10 000 80 000 15 000 20 000 100 000 30 000 60 000 70 000 40 000 50 000 45 000 80 000 A–B A–C A–D C–E C–F B–F E–G F–G D–I G–H H–J I–J 20 000 100 000 60 000 50 000 400 000 33 000 70 000 150 000 60 000 60 000 290 000 240 000 0 A 0 2 2 C 4 4 6 B 4 19 19 5 H 7 E 3 G 4 F 8 8 I 6 12 20 6 14 14 3 J 23 23 11 4 5 4 4 D 6 14 Figure 5.Module 5 / Project Time Planning and Control Table 5. irrespective of cost increases. The initial project condition is therefore 23 weeks at a cost of £503 000.13. This sequence will remain the most cost-efficient until a new critical path is formed at some point in the network. rather than the overall cost of crashing figures. The most cost-effective sequence is reflected in the cost of crashing per unit of time figures. The most economic sequence is as shown in Table 5. 5/68 Edinburgh Business School Project Management .

It can only be crashed by one week. After crashing A–B. Activity B–F is therefore crashed by 1 week and the critical path is then checked. B–F and A–C. There are three weeks of float on the upper route and seven weeks of float on the lower main route. The obvious danger area is the upper secondary route through A–C and C–F.Module 5 / Project Time Planning and Control Table 5. This could lead to a problem if B–F is the next most economical activity to crash.2 Crash B–F Activity B–F is the next most economical activity to crash. C–F has Project Management Edinburgh Business School 5/69 .3. there is only one week of float available on this route before a second critical path is formed.3.13 Activity Initial crash sequence Normal duration (weeks) 4 4 4 5 6 Crash duration (weeks) 3 3 2 4 4 Normal cost (£) 10 000 3 000 200 000 10 000 10 000 Crash cost (£) Cost of crashing per week 10 000 30 000 45 000 50 000 70 000 A–B B–F H–J G–H F–G 20 000 33 000 290 000 60 000 150 000 5. It can be seen that the total float that existed between the route A–B.1 Crash A–B Activity A–B is crashed by 1 week.3. It should be noted that even if it could have been crashed by more than one week there would be no point in doing do.47 that the critical path is unchanged by this initial crash. The critical path is then checked.47 Critical path after crashing A–B 5.3. 0 A 0 2 2 C 3 3 6 B 3 18 18 5 H 7 E 3 G 4 F 7 7 I 6 12 19 6 13 13 3 J 22 22 10 4 5 3 4 D 6 13 Figure 5. as a double critical path is formed after this activity is crashed by only one week. It can be seen from Figure 5. but it will not be a problem if the next activity is not parallel to A–C and C–F.

This activity is not in parallel with any other near-critical activities. 5. Both of these still have reasonable amounts of float time left within them. In addition. 5/70 Edinburgh Business School Project Management .3.48 Critical path after crashing B–F The remaining critical items are therefore still F–G.3. A–B and B–F have both been crashed right up to their individual activity limits. The new network therefore is as shown in Figure 5. and so crashing G–H (see Figure 5. G–H and H–J. and there are now two critical paths in this region of the plan (see Figure 5. because A–C and C–F run in parallel to these fully crashed activities.4 Crash G–H Activity G–H is again not in parallel with any other critical activities. and it is therefore not seriously eroding any important slack reserves. no further crashing is therefore available on these items.3 Crash H–J Activity H–J is crashed by 2 weeks. 0 A 0 2 2 C 3 3 6 B 2 17 17 5 H 7 E 3 G 3 F 6 6 I 6 12 18 6 12 12 3 J 21 21 9 4 5 3 4 D 6 12 Figure 5. even if they appear cheaper to crash than some other activities.49.Module 5 / Project Time Planning and Control now been eroded. it is only in parallel with the upper and lower alternative routes. and even if they appear on a critical path. The next stage is to crash G–H as the next most economical activity. The critical path remains the same.48).3. These activities should therefore be ignored in the subsequent analysis. The final activity to crash is F–G. 5. no further crashing is economical on either A–C or C–F.3.50) poses no direct problems. In addition. Activity H–J is the next most economical.

Project Management Edinburgh Business School 5/71 .Module 5 / Project Time Planning and Control 0 A 0 2 2 C 3 3 6 B 2 17 17 5 H 7 E 3 G 3 F 6 6 I 6 12 16 6 12 12 3 J 19 19 9 2 5 3 4 D 6 10 Figure 5.5 Crash F–G Crashing F–G (see Figure 5.49 Critical path after crashing H–J 0 A 0 2 2 C 3 3 6 B 2 16 16 5 H 7 E 3 G 3 F 6 6 I 6 12 15 6 12 12 3 J 18 18 9 2 4 3 4 D 6 9 Figure 5.3. The crashing of any other activities in the network would be pointless as there will be no further reductions in the overall completion duration. This represents the end of the crashing process as all the activities on the critical path have been crashed up to their crash limits.3. and the final crash curve for this project is shown in Figure 5.51) brings the overall completion duration down to 16 weeks.14. The final crash sequence is shown in Table 5.50 Critical path after crashing G–H 5.52.

Other forms of trade-off analysis are applicable to performance and time. there may be cases where none of the variables is fixed. or yet other cases where they all are.1 Trade-off Analysis Introduction Crash analysis is one type of trade-off analysis. but crash calculations consider the relationship between time and cost variables only. It would. and performance and cost.4. Thus. Each scenario seeks to establish the relationship between two of these variables while assuming that the third variable is fixed or constant.4 5. the crash analysis summarised above assumes that the quality standards on the project are constant. if the client finds this acceptable. There may be cases where more than one variable is fixed. Trade-offs are very useful in that they allow a project manager to show a client different scenarios and outcome possibilities as an aid to decision making. of course. be possible to save time on the project by reducing quality. Performance–time trade-offs assume that cost is fixed and performance–cost trade-offs assume that time is fixed.51 Table 5. 5/72 Edinburgh Business School Project Management .Module 5 / Project Time Planning and Control 0 A 0 2 2 C 3 3 6 B 2 14 14 5 H 7 E 3 G 3 F 6 6 I 6 12 13 4 10 10 3 J 16 16 7 2 4 3 4 D 6 7 Figure 5.14 Activity Critical path after crashing F–G Final crash sequence with project cost and time Normal duration Crash duration Normal cost Crash cost Cost of crashing per week 10 000 30 000 45 000 50 000 70 000 Cumulative time 23 Cumulative cost 503 000 513 000 543 000 633 000 683 000 823 000 A–B B–F H–J G–H F–G 4 4 4 5 6 3 3 2 4 4 10 000 3 000 200 000 10 000 10 000 20 000 33 000 290 000 60 000 150 000 22 21 19 18 16 5.

but they are only prepared to pay for it up to a point. provided that it is relatively low and is adequately covered by some form of guarantee or warranty. provided that the increase in cost does not make any required increase in price uncompetitive in relation to competitors.53 shows a typical trade-off curve for cost against performance. Clients generally want reliability. they will switch to a less reliable product. As reliability increases. The higher the performance. Higher reliability will generally lead to higher sales. the higher the unit cost.52 Final crash curve for worked example This section seeks to develop an understanding of what trade-off analysis is and how it can be applied as a project management tool.Module 5 / Project Time Planning and Control Cost (£1000) 823 Non-critical crashes F–G 683 G–H 633 H–J B–F 543 513 503 A–B Project starting point 16 18 19 21 22 23 Time (weeks) Figure 5. Trade-off analysis is the process that allows project managers to produce these curves as an aid to decision making. Figure 5. Once the product becomes too expensive. Clients will generally be happy to accept a known defect rate. The curve represents the relationship between cost and defect rates. Project Management Edinburgh Business School 5/73 . the cost will at some point reach a stage where it is no longer competitive.

2 million. The client time deadline might allow a project duration of up to 48 weeks but a maximum cost limit of £6. but it is important that whatever it is that has happened is identified so that the project manager can make sure that the problem does not recur. 5.4. Reevaluate the project objectives. Allow for any other relevant factors.1 Identify the Reasons for the Problem In all cases there is an underlying need for the trade-off analysis to be conducted. Trade-offs can occur both before and during the execution of the project. Pre-execution trade-offs usually result from changes in the client requirements or because the original draft master schedule (DMS) or cost plan does not meet client requirements. Implement the best alternative. Each is considered in turn below. It would be dangerous to carry out a full trade-off analysis and develop a revised project plan if the underlying problem or problems have not been addressed. The trade-off analysis seeks to correct the plan to allow for whatever has happened. Assemble a shortlist of solutions scenarios.0 million. In this case the trade-off would be concerned with extending the durations of some activities 5/74 Edinburgh Business School Project Management .Module 5 / Project Time Planning and Control 95% Detect-free rate 90% 85% 500 750 1000 Manufacturing cost per unit (£) Figure 5.4. The original DMS might show a project duration of 45 weeks and a cost of £6. Select and test the best (or approved) alternative.53 Cost–performance trade-off 5.2 Methodology for Trade-off Analysis There is a six-stage methodology for trade-off analysis: 1 2 3 4 5 6 Identify the reason for the problem.2. The original plan has become obsolete for some reason.

2 Reevaluate the Project Objectives In the case of both pre-execution and execution trade-offs it is necessary to reevaluate the project objectives in order to ensure that the original objectives of Project Management Edinburgh Business School 5/75 . emerging risk (such as inaccurately assessed risk). changes imposed by subcontractors and suppliers. It is imperative that the reason for the problem is identified and some kind of control system put in place to avoid or control the occurrence of the same project in future. there may be a serious impact on subsequent work package start and finish times and the progress of the whole project could be affected. Such warnings do not always have the desired effect! However in issuing such a warning the project manager has fulfilled his or her professional obligations in relation to notifying and informing the client about the consequences of his or her actions.2. Typical reasons for execution trade-offs include: • • • • • changes in client requirements (particularly additional required work). If the rate of progress is not increased. unforeseen problems such as sudden non-availability of important materials.4. The project manager might look at the work package and form the opinion that the delay that has occurred is too great for the time reserves that are built into the programme and that the likely rate of progress on the work package must be increased.0 million. Execution trade-offs are usually (but not always) tactical responses to change. discovered execution problems (such as unforeseen work complications). project-specific events (such as mechanical failure or unforeseen ground conditions). changes in organisational strategic objectives (generally resulting from external imposed change). changes imposed by external consultants. discovered design incompatibilities. discovered human error (such as inaccurate time estimating). The progress control system might indicate that a particular work package is seriously behind schedule. The process would take place before any work actually starts on executing the project. 5.Module 5 / Project Time Planning and Control so as to bring the overall cost estimate down to £6. Typical reasons for pre-execution trade-offs include: • • • • • • • changes in client requirements (particularly changes in the required scope of work and cost limits). For example a client who insists on continuously changing the specification and adding to the scope of the works should be warned that such practice will have a detrimental effect on the overall performance of the project. Projects are subject to a wide range of internal and external changes and some of these may cause a requirement for trade-off analysis in order to keep the project on course. misunderstandings resulting from poor communications. The project manager has no alternative other than to input additional resources to the work package and incur additional costs as a result.

weather conditions (where relevant). 5. If this occurs the chances are that a project that was important in terms of the old strategic objectives (such as a former key acquisition) becomes downgraded and of secondary importance. consultant problems. A company might be half way through a strategic acquisitions programme when suddenly there is a change in the environment and revised strategic objectives have to be formed. changes in strategic leadership and emphasis. The parent company may have acquired newer and more prestigious projects and as a result the priority given to a particular project may have changed. Edinburgh Business School Project Management 5/76 . discovered errors or omissions in the contract documentation. Typical reasons for a relative change in project status resulting from a change in organisation strategy include: • • • • • • • changes in competitor behaviour. changes in customer demand. These factors could apply at any level from strategic to operational. the introduction of new legislation. changes in available technology.3 Allow for Any Other Relevant Factors Having identified the reasons for the change and having re-evaluated the project objectives.Module 5 / Project Time Planning and Control the project have not changed. changes in the national and global economy.4. the introduction of new codes of practice. The parent company may choose to deprive the project of resources or reduce the cost limits available because priority and emphasis has changed. Alternatively there may be a change in the overall strategic objective of the organisation and this may result in an imposed realignment of the objectives of the project. resource availability problems. which in turn could result in the original project objectives becoming misaligned. Any of these changes could result in the formulation of new strategic objectives. exchange rates (where applicable). In such circumstances it may be a waste of time for the project manager to attempt to negotiate to retain his or her initial project resources as the entire strategic thrust of the organisation has changed. An example of objective re-alignment is a sudden shift in strategic objectives resulting from an environmental change. Imposed change may result from changes in the project status and environment. mechanical failure and breakdown. the project manager has to consider any other relevant factors that could affect the trade-off analysis. Typical examples could include: • • • • • • • a deterioration in industrial relations within the company.2.

Most change control systems require an estimate of the likely cost or time implications of individual decisions (including the selection of the best trade-off Project Management Edinburgh Business School 5/77 . This is the classic response of the building contractor who will take resources from a site and/or try to execute the work to a lower standard.Module 5 / Project Time Planning and Control The range of potential factors is wide.4 Assemble a Shortlist of Solutions Scenarios The next stage is for the project manager to consider all possible solutions to the problem and develop a short list of those that most readily meet the demands of the problem. and this may or may not be acceptable within the cost control system that is applied to the project. The contract may stipulate a contractual date for completion and the contractor may be faced with financial penalties if the project is not completed on time. the project manager may attempt to address it by extending the time that is allocated to individual activities or by compromising on performance. Project work packages tend to be highly interdependent. 5.4. The additional time required may or may not be available under the terms and conditions of the contract (see above). The contract will usually also contain detailed provisions on the standards of quality and workmanship that are required (the specification) and if the contractor is caught compromising these.4. This occurrence could result from the initialisation of other major projects within the company portfolio. If cost is the problem.2. he or she is in breach of contract. 5. the project manager might seek to address it by adding additional resources or again try to compromise quality.5 Select and Test the Best Alternative The final decision on the best scenario could be the responsibility of the project manager or it could have to be referred to a higher authority. The project manager has to look at the options that are available and consider the potential risks and negative consequences that are associated with each alternative scenario. The change control system will normally set out specific levels of authorisation for tactical responses. There is no point in trying to speed up an activity if the resources required to do so are suddenly not available. The shortlist is restricted in scope to what is possible within the constraints that apply and is particularly influenced by the nature of the problem. These responses are all linked and are compatible with the time–cost–performance continuum discussed earlier. If performance is the problem the classic responses are to increase the time that is available for completion of the work package or to increase the cost limit that is available.2. Increasing resources usually means increasing costs. so it may be a waste of time adding resources to speed up a work package if other success-dependent contributors (such as external consultants) do not do the same. If time is the problem. will depend largely upon the controls that are applied to the project. The extent to which these tactical responses work. If necessary a full risk assessment (see Module 3) may have to be carried out where the advantages and disadvantages of each scenario are evaluated.

the original PMS is revised and a new PMS is issued subject to the appropriate revision records and controls. In the case of pre-execution revisions. with two fixed. For example the change control system might establish that if the estimated cost of the decision is less than £100 000 the project manager is responsible.1 Type 1: Time Is Fixed A type-1 trade-off has a fixed time element with variable cost and performance. Time compliance is therefore the primary project objective and can be achieved by variations in cost and performance. cost and quality constraints. This scenario is more unusual and would apply where more rigid control systems are in place. 5. Where approval at a higher level is required it is normal practice for a formal trade-off recommendation report (TORR) to be produced. In the case of execution revisions. the end result is the PMS that is issued as part of the contract documentation. some projects may operate with one variable fixed. This limitation would apply to most standard projects.2. Above this level the decision may have to be referred to a change control committee or equivalent. This involves implementing the revision and producing a new draft master schedule (DMS). Type 1. Railtrack have various service level agreements with train 5/78 Edinburgh Business School Project Management . There may sometimes be a requirement for further approvals before the revised DMS can act as the project master schedule (PMS). Where one variable is fixed the other two can be expressed as a function. An example is re-opening a main railway line after a derailment.6 Implement the Best (or Approved) Alternative The project manager is responsible for implementing the best (or approved) alternative.4.4.3. In the UK railway lines and signals are owned by Railtrack.Module 5 / Project Time Planning and Control scenarios) and set authority levels to match these estimates.4. Type 7 and 8 trade-offs are more unusual still and would apply only to very small projects or projects that are carried out under extreme environmental conditions. 5. Alternatively the TORR may contain (say) the top five recommended scenarios and the higher level authority is invited to choose the option that they feel is best under the circumstances. There are therefore several alternative scenarios that might apply. Change control committees and change review panels often do not like this approach as it puts the decision-making responsibility on them! 5. 5 and 6 trade-offs are those where two variables are fixed. 2 and 3 trade-offs are those where one variable is fixed. The project manager’s recommendations may be ‘knocked-back’ several times before an acceptable compromise is reached. The project manager usually maintains a ‘hit list’ of preferred scenarios and submits these in order of preference.3 Trade-off Classification Within overall time. or even with all three fixed. This report sets out the underlying facts for the recommendation and seeks approval for the recommendation to be implemented. Type 4. This type of trade-off occurs where time is of the essence and cost and performance are secondary.

In some cases. Most massand batch-production systems are set to manufacture products at a constant rate. This type of scenario would occur where a certain amount of money has to be spent within a set time scale. Most production systems used type-3 trade-offs to some extent.4.3. even though this may mean writing off a great deal of development investment.Module 5 / Project Time Planning and Control operating companies that require them to provide track at all times or face direct loss and expense penalties. New products are designed using the same approach. leading to a subsequent reduction in customer demand for the product.4. Defective products can incur significant cost as the organisation may be liable for reimbursement and compensation.3. The reputation of the company may be damaged.3 Type 3: Performance Is Fixed A type-3 trade-off occurs where performance is fixed. a cost is agreed together with a time scale Project Management Edinburgh Business School 5/79 . Railtrack are liable for large reimbursement payments for every minute that a main line is out of commission. Type-1 trade-offs are widely used in planning production systems. The university will usually ensure that the money is spent even if it does not necessarily contribute to the quality of the research! 5. A research council may allocate a certain sum of money to a university to conduct a piece of approved research. it is in Railtrack’s own interests to reopen the line as quickly as possible no matter what the actual project costs are. The award usually has to be spent within a certain variable time limit and any money not spent has to be returned to the research council. the company may even abandon projects where results do not indicate minimum levels of quality. The quality control sections within the organisation will insist on accepted minimum standards being applied irrespective of how long the process takes or how much it costs.3.4. If there is major derailment. In this case.4 Type 4: Time and Cost Are Fixed A type-4 trade-off occurs where time and cost are fixed but performance is variable or not specified. Customers demand a certain minimum level of performance and the production system uses appropriate quality-management systems (see Module 7) to ensure that production meets these levels. An example is clinical trials of a new drug.2 Type 2: Cost Is Fixed A type-2 trade-off occurs where cost is the primary consideration and where time and performance are variable. the quality of the process is the most important factor and it is permissible to vary time and cost in order to meet the minimum standards of performance that are set. An example is a budget for a research contact. The consequences of releasing a defective drug are potentially disastrous for a pharmaceutical company. The product designers vary the cost and performance of the product in order to meet customer demand and the effects of competing products. 5. 5. Performance is also a variable in that one way traffic may be acceptable in the short time provided the line is reopened. In this case.

An example is a householder who contracts with a kitchen installer to install a new kitchen.3. simple projects. the specification and the time scale before hand and the installer complies with the agreed values. External consultants are commissioned to complete a given task at agreed fees and to an agreed time limit. 5. A company.Module 5 / Project Time Planning and Control for completion but the level of performance is left open within limits. instead. There may be some scope for cost increases – possibly if 5/80 Edinburgh Business School Project Management . This scenario is unusual and tends to be found in relatively small. This scenario would occur where a company knows that it has to achieve some minimum standard but it has some flexibility over how much it spends and how long it takes in achieving it. cost nor quality. Government legislation may require (for example) a power generator to comply with new emission standards by 2007. provided that it is completed by 2007. may take a strategic decision to launch a new high profile and high quality model by a certain date. The householder agrees the cost. 5.3.7 Type 7: Everything is fixed A type-7 trade-off occurs where all three variables are fixed. such as Mercedes. The company may be prepare to accept varying development costs in order to meet the published date and quality standards in order to maintain their reputation for reliability and quality.4.6 Type 6: Cost and Performance Are Fixed A type-6 trade-off occurs where cost and performance are fixed but time is variable. The relative complexity of projects generally means that performance standards have to be specified in some way.4.4. An example is the development and release of a new high status model of automobile. An example is the compliance with a new environmental standard. the client does not set an established level of performance. There is no flexibility in time. The new model has to meet (at least) the minimum standards that customers expect of a Mercedes. 5. The decision on when to proceed may be influenced by a range of performance factors and considerations.3. Compliance may require the installation of new electrostatic dust precipitators that will cost a known amount at today’s prices and which will reduce emissions to within the minimum set by the new legislation. Type-4 trade-offs are rather unusual in a project context. A company sets a date for completion and a set of minimum standards and then spends a variable amount of money in order to achieve these fixed objectives. The company can either go ahead and do the work now or it can wait a few years and do the work at some point in the future. relies upon the professional standards and codes of practice that are set by the appropriate professional body. The consequences of a lower-than-expected product or late release may more than compensate for any increased development costs. However.5 Type 5: Time and Performance Are Fixed A type-5 trade-off occurs where time and performance are fixed but cost is variable. but it is generally a dangerous policy to allow performance to vary. The client. An example is a professional services contract. External professionals can be ‘trusted’ to some extent.

The time-decrease section of the curve is similar to curve A but. A type-7 trade-off is only likely to occur where: • • • • • • the project is relatively simple and small. the overall duration is short and can be estimated more or less precisely. This scenario is relatively unusual and is restricted largely to emergency works. Other example curves could include those for time–cost. The crash cost curve generated in the crash analysis section is an example of a trade-off curve. so does the wages bill.4.8 Type 8: Nothing Is Fixed A type-8 trade-off occurs where no variables are fixed. 5. performance–cost and performance–time. Type-8 trade-offs are sometimes encountered in stop-lossing. the extent of the works can be accurately agreed before work starts.54 represents a typical time–cost trade-off. 5. each of which are described further below. there is unlikely to be much imposed change. for it shows the relationship between project cost and time with performance fixed.4. This practice is used by contractors who have lost money or prestige on a project and all they want to do is comply with their contractual obligations as quickly as possible and move onto another contract.Module 5 / Project Time Planning and Control additional works are discovered or if the householder changes his or her mind on a particular cooker or fridge – but excluding imposed changes.1 Time–Cost Curve A in Figure 5.4 Example Trade-off Curves Trade-off curves can be generated for virtually any application. It does not matter how long it takes (provided that people can have survived long enough) or how much it costs or even how the work is carried out so long as people are rescued. This type of curve is typical of large local authority or central government departments where large numbers of expensive staff are being charged to a given project. Project Management Edinburgh Business School 5/81 . A disaster-relief project might involve sending rescue teams to an earthquake zone. contractors will sometimes ‘pull out all the stops’ and do whatever is possible to fulfil their contractual obligations as quickly as possible.4. All that matters is rescuing people while there is still a chance that there may be survivors amongst the wreckage. the time-expansion section shows a considerable and rapid cost increase.4. Curve B represents a project with a large fixed overhead cost. because of the large fixed overhead. In such cases. The curve is negative with an increasing gradient. As the time scale for the project life cycle expands. the performance requirements can be agreed in detail. the cost of the works can be agreed accurately.3. 5. the three variables are fixed from the outset.

4. Marginal improvements in near perfect systems like this is only justifiable in a relatively small range of applications.4. For example. Most production systems have a maximum performance point. the cost of achieving further performance improvements will increase. the 1 per cent increase in efficiency might just be enough to make the product the market leader. existing rocket fuels may provide known energyrelease rates. and military applications. Curve B in Figure 5. There will generally be a linear relationship between cost and performance up to a point. Curve C in the same diagram represents a case where there is a linear relationship between cost and performance. but beyond that point there will generally be a change in the linear relationship.Module 5 / Project Time Planning and Control Time-decrease section Cost Curve B Time-expansion section Curve A Time Figure 5. It may be possible to improve efficiency by 1 per cent by increasing development costs by 50 per cent – this kind of scenario is relatively common in research applications. which might 5/82 Edinburgh Business School Project Management . This could be a case where an organisation sends inefficient staff on a training course. medicine and pharmaceuticals. further performance improvements will require additional investment. This change will tend to occur because the benefits of the original cost investment will have reached the limits of their applicability. In most cases.55 represents a system where very large injections of cash are needed in order to achieve small improvements in performance. or allow it to break through into a new application area.2 Performance–Cost The trade-off curve for performance and cost could take a number of different forms. There will also be a point beyond which no further performance improvements can be achieved. irrespective of investment. Examples are high-technology research and development. Typically. it is generally possible to improve performance by investing in a relevant production system. followed by a cash investment that creates a significant improvement in performance. Clearly. This type of curve might be present in high-technology development or research programmes. Curve A in Figure 5.55 represents a standard performance–cost relationship.54 Trade-off curve for time–cost 5.

4. breakdowns. Time investment leads to performance improvement in ‘steps’. Curve B Curve A Cost Curve C Performance Figure 5.56 represents a stepped profile. In this case.Module 5 / Project Time Planning and Control represent only a small investment but it might bring about large increases in output efficiency. the rate of development decreases.4. The curve would be characterised by a sudden increase in performance followed by a gradual levelling out as the effects of the training course become absorbed into the system and reach a point where they cause no further increases. Curve B in that diagram shows a similar relationship.3 Performance–Time The final set of curves shows possible trade-offs between performance and time. An example of this is allowing an assembler more time to assemble a finished product. Project Management Edinburgh Business School 5/83 . However. the defect rate is reduced and hence the overall performance of the system is increased. this will only apply up to a point. Curve C represents a case where large amounts of time are required to secure small increases in performance. Beyond that point it will require a lot more time to gain additional improvements in performance of the same size.55 Trade-off for performance–cost 5. By making the time investment. Curve D in Figure 5. packaging etc. It is likely that a system can produce something better if it is allowed to take more time. This arrangement is represented by curve A in Figure 5. which is already designed and used at the leading edge of technological development. such as equipment. An example is a highly complex engineered product. In most cases there will be a linear performance–time curve up to a point. This will tend to happen as something else begins to limit improvements. As the knowledge base and experience increase within the organisation.56. This type of arrangement would be observed where a new adaptation or breakthrough is being exploited. large improvements are initially possible by allowing more time.

The project manager might subsequently want to speed up the rate at which the design work is carried out. For example. statutory bodies and anyone else who might have to make a significant input and over whom the project manager has relatively little control. In such circumstances. (probably based on total fees and total agreed design times). details of the remit and established fees agreed. This will give a date by which the design work must be completed. This may be because of changed client requirements or because delays have occurred elsewhere.Module 5 / Project Time Planning and Control Curve A Curve C Time Curve D Curve B Performance Figure 5. and the contractor or subcontractor can only increase costs if there is any slippage in any of these fixed items. The negotiations would usually be based on increased fees in relation to increased resources in order to increase output. Increased resources could then be covered by increased fees in relation to the increase in person hours required in order to achieve the new completion dates. It is generally possible to negotiate changes in the project variables with consultants. most consultants will be appointed under some form of professional engagement contract. In a highly controlled project. the project manager would usually negotiate increased resources with the design teams. It is usually possible to adjust all three project-success criteria at least to some extent.56 Trade-off for performance–time ♦ Time Out Think about it: trade-off variables. The major design milestones might depend on inputs from other bodies that cannot be speeded up as readily as the design consultants. It is not always as simple as agreeing increased staffing levels in order to speed up output. External consultants could include organisations such as funding bodies. These external bodies can often greatly 5/84 Edinburgh Business School Project Management . Sometimes it may be possible to work with more than one fixed criterion. the client might insist on a definite hand-over date and a carefully controlled level of quality. local authorities. This could be done by converting the agreed fees into an hourly equivalent. contractors and suppliers. The number and range of variables will depend on the nature of the project and on client requirements.

Questions: • • What would be typical external contributors on an educational project to develop a new course? What sort of procedures could be used to try and give the project manager as much control as possible over external contributors? ♦ 5. materials. but the most important one when scheduling activities is resource availability. There are seven main types of resource: • • • • • • • people. It is very much another thing to staff the project team and then ensure that enough resources are available to allow the project to be successfully completed. Other teams perform considerably worse than their potential. Resource productivity is a measure of how effectively team members work both individually and collectively as the project team. Some teams work better than the should do when looked at ‘on paper’. Project Management Edinburgh Business School 5/85 . resources have to be allocated to each activity to ensure its successful completion.5 5. information.5.Module 5 / Project Time Planning and Control complicate the trade-off process. funds. space (where appropriate). It is one thing to define the project logic and set out the most logical network for completion. The team itself will generally include individuals who possess a range of different abilities and skills. There are numerous reasons for varying levels of productivity. After defining and sequencing the tasks to be done. technology. Each person also has a personal level of motivation. and the two major considerations to be made in allocating these resources are: • • resource productivity.1 Resource Scheduling Introduction Project planning depends on a wide range of variables. equipment. resource availability. The productivity of the project team is not necessarily the sum total of the individual potential productivity ability of each individual.

Most organisations do not have idle staff and equipment waiting to carry out a particular activity for a particular project. Team performance tends to be related to project life cycle. These factors will have a significant impact on the project plan. team members might become unavailable for a time. What is more likely is that several projects will be competing for the same resources at any one time and hence the work must be scheduled according to the organisation’s priorities. Teams have to evolve through a forming process and the task itself usually generates an imposed learning curve. teams need to have a balance of individual member abilities. Equipment can have a considerable effect on overall productivity.5. Consider the labour requirements for the bridge project. Personality clashes may lead to conflict and the overall performance of the team may be affected. It is clear that a building company with only two plumbers available. The project estimator (see Module 6) will generally allow for the resources required when he or she is preparing the cost estimate for each activity.15. A team may comprise a number of individuals who all have good leadership skills.Module 5 / Project Time Planning and Control • • • • • Individuals who are highly able and committed may be held back by the rest of the team where the average level of commitment and motivation is lower than that of the individual. 5/86 Edinburgh Business School Project Management . set out in Table 5. In order to perform well. resource availability will directly affect how well the team is able to meet the requirements of the schedule. The resources allowed will usually be based on past experience of carrying out similar works. or through sickness. Similarly. Manufacturing systems tend to rely very heavily on equipment and the technology that is associated with it. A balance of different skills is required. The data represent the estimated labour requirements for each activity. Once the project is under way. The starting point is to isolate the resources that are required for each activity. It does not follow that the team will be well lead. 5. Productivity does not relate purely to people. Variations in equipment productivity have an immediate effect on the productivity of the whole system. It is equally obvious that a plumber bending pipes manually is going to produce less output (have lower productivity) than a plumber using a mechanical pipebending machine. perhaps through being temporarily reallocated within the organisation. cannot carry out several simultaneous plumbing activities that require four plumbers without hiring two more. Some combinations of individual personalities and skills produce synergies that are not apparent ‘on paper’. Resources might or might not be available at the start of the project. and then to calculate resource requirements as a function of schedule completion requirements.2 Resource Aggregation Resource aggregation is a way of estimating the total resource requirements on an ongoing basis throughout the life cycle of the project.

If resources can be moved easily between projects there are still a number of disadvantages associated with wide variations in demand.15 represents only the labour resource. Figure 5. but the magnitude of the fluctuations in the example is considerable. although resource requirements increase again up to a second peak around days 35–38. Each time a person joins a new project team there is an Project Management Edinburgh Business School 5/87 . along with its associated unskilled labour resource table and labour histogram. equipment and materials. The maximum single resource demand occurs on day 10. Generally the greater the difference between the maximum and minimum demand the greater the degree of inefficiency within the resource profile. If resources cannot be moved around between projects easily. Resource fluctuations are inevitable and will always occur to some extent on a project.15. There is an obvious trough after day 12. large variations in resource demand leads to periodic idle time. Idle time in turn can lead to individual loss of earnings (through bonus and productivity related pay) and consequent disillusionment and de-motivation. as in many others.57 shows a Gantt chart for the project. The only context in which large fluctuations do not indicate an inefficient arrangement is where resources can be moved quickly between projects and where set skills are in more or less constant supply and demand throughout a programme of projects. the main resources will be labour. Each activity will have provisions made for all the resources that are required for that individual activity. The resource distribution indicates considerable fluctuations in labour demand on a day-to-day basis. The Gantt chart shows the start and finish times for the various activities. In the bridge project.Module 5 / Project Time Planning and Control Table 5. The labour histogram shows the total resource demand over the duration of the project.15 Activity A B C D E F G H I J K L M N O Example resourcing requirements Labour requirements Description Mark out site Dig foundation A Concrete foundation A Cure foundation A Dig foundation B Concrete foundation B Cure foundation B Dig foundation C Concrete foundation C Cure foundation C Erect tower A Erect tower B Erect tower C Erect west span Erect east span Skilled 1 1 1 0 1 1 0 1 1 0 2 2 2 2 2 Unskilled 2 4 5 1 5 7 1 4 6 1 3 5 3 5 4 Table 5. The resource table shows the total resources required based on the Gantt chart and using the resource distribution given in Table 5. There is a clear peak between days 6 and 12.

unskilled labour resource table and histogram for bridge project 5/88 Edinburgh Business School Project Management . Team and project learning curves both lead to reductions in productivity and a consequent reduction in the overall effectiveness of the project.Module 5 / Project Time Planning and Control inevitable team forming process before the team can work at full efficiency. There will also be a learning curve as the new member comes to terms with the new project.57 Gantt chart. Day number 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 Mark out site Dig Foundations A Concrete Foundation A Cure Foundation A Dig Foundations B Concrete Foundation B Cure Foundation B Dig Foundations C Concrete Foundation C Cure Foundation C Erect Tower A Erect Tower B Erect Tower C Erect west span Erect east span Total unskilled labour 0 0 0 0 0 4 4 4 4 6 6 13 8 8 8 2 2 2 5 2 2 2 4 4 1 1 1 1 1 1 5 5 5 9 9 9 9 5 0 Gantt chart for bridge project before resource levelling Day number Mark out site Dig Foundations A Concrete Foundation A Cure Foundation A Dig Foundations B Concrete Foundation B Cure Foundation B Dig Foundations C Concrete Foundation C Cure Foundation C Erect Tower A Erect Tower B Erect Tower C Erect west span Erect east span Total unskilled labour 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 2 2 2 2 2 4 4 4 5 5 1 1 1 1 1 1 1 1 5 5 5 5 5 5 7 7 7 7 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 4 4 4 4 6 6 6 1 1 1 1 1 1 1 1 1 1 3 5 5 5 3 3 5 5 5 5 5 4 4 4 4 2 2 2 2 2 13 13 13 14 16 12 14 9 9 9 3 3 3 5 2 2 2 4 4 1 1 1 1 1 1 5 5 5 9 9 9 9 5 0 Unskilled labour resource table for bridge project before resource levelling 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 Labour histogram for bridge project before resource smoothing Figure 5.

for example 70 per cent. Some scenario examples are considered below. When using most packages the project manager can set the program to level automatically as activities and resources are entered or to level manually (only when the project manager wants the resource profile to be levelled).5. There are a number of constraint scenarios within which resource levelling can be considered.57. This means that resource peaks in critical activities cannot be reduced. If 100 people are employed on the project for 50 days there are 5000 person days available. The resource utilisation percentage is: Resource utilisation percentage = 2500 5000 × 100% = 50% In Figure 5. The levelling cannot affect the critical path so critical activities cannot have resources reallocated or delayed. The percentage can be projected forward and shown as a curve.Module 5 / Project Time Planning and Control 5. If each person on average only works on the project for 25 days then the total number of person days worked is 2500. The resource utilisation percentage can be calculated for each week (or even day) through the project based on the resource allocation allowed for in the planning stages. Efficient resource utilisation can be a key determinant of project performance and can contribute significantly to the achievement of project objectives. Levelling is restricted to non-critical activities and only to the extent that any available float time can be consumed. 1 The project completion date is fixed. The project manager might set a minimum value for the percentage. Resource utilisation is often expressed in terms of an efficiency index known as the resource utilisation percentage.4 Resource Levelling (or Smoothing) Resource levelling or resource smoothing is the process of levelling out the peaks and troughs in resource demand so that resource utilisation approaches an average. Resource levelling can only be carried out to a limited extent. the black area in the histogram represents the days actually worked on the project.5. The project completion date is variable.3 Resource Utilisation It is important to make efficient use of resources where possible. If it falls below a certain level. The relative scenario affects the extent to which resource levelling can be carried out. The resource utilisation percentage is simply the total number of person days actually worked on the project divided by the total number of persons days available for the project. Levelling can take place on all activities but only up to the maximum duration allowed for the project. In this case the critical-path activities are prioritised and levelling takes place Edinburgh Business School 2 Project Management 5/89 . 5. then some degree of resource levelling must take place in order to increase the percentage to at least the minimum level. This curve can be superimposed over the resource histogram to show percentage values across the life cycle of the project. Most project planning software has a facility to perform a resource levelling function.

Module 5 / Project Time Planning and Control 3 4 in a set sequence.16 shows the early and late start values for each activity. This scenario would only occur in the case of relatively small projects that are being executed within a relatively large organisation. Levelling may distribute demands in this key resource over several parallel activities.16. resources are always limited to some extent. F–G.58. The prioritisation system allows for such variables as agreed subcontractor start dates and supply delivery dates. B–D. However. Least flexibility is available where the duration and resources are both fixed. For example. The early and late start points can be calculated as shown in Table 5. The critical path runs A–B.18. because there is 3-day float on this leg. unless some labour can be hired to start on day 5 instead of day 1. resource levelling works by consuming the float that is available on each non-critical activity. the earliest that activity B–C can start is day 2. However. Levelling has to take place subject to the constraint that a maximum of ten resource units. Resources are unrestricted. Resources are limited. an IT upgrade project may have a limit of ten software engineers. It is clear from the data that the shift toward the later start dates reduces the maximum peak values around days 3–5. because it is dependent on A–B. It is now possible to develop a resource aggregation for the two extremes of early start and late start. In most practical applications. Most flexibility is allowed where the project has unlimited resources and a variable duration. there is an earliest start time and a latest start time. the late start alternative leads to low resource utilisation for the first four days of the project. together with the total number of resource units required for each activity.17 and 5. G–H. but with some shifting of activities from days 5–7 back to the area of day 0–4. Consider the network in Figure 5. In practice. For example. activity B–C can start as late as day 5 and still be completed by day 8 (as its duration is 3 days). In this case. This constraint limits the extent to which any redistribution can take place. The ideal solution would comprise mostly later starts for the network activities. The combination of scenarios that apply to the project affect the ultimate flexibility of the resource levelling process. This aggregation is shown in Tables 5. D–F. For each non-critical activity. 5/90 Edinburgh Business School Project Management . Table 5. Resource levelling works by comparing the resources required to achieve the earliest start time and comparing this to the resources required to achieve the latest start time. A number of parallel activities may require the same key resource. The early start figures originate from the forward pass and the late start figures originate from the backward pass. A compromise is then made at which lies somewhere between these minimum and maximum resource values. there are no limitations on the extent to which resources can be redistributed. which may lead to a resource demand that is in excess of the limit allowed.

21 show the absolute values for resource demand for the early start and late start options. In each case.16 Activity A–B B–C B–D B–E C–F D–F F–G E–G G–H Early and late start values Duration (days) 2 3 4 2 2 4 3 1 1 Early start (days) 0 2 2 2 5 6 10 4 13 Float (days) 0 3 0 8 3 0 0 8 0 Late start (days) 0 5 2 10 8 6 10 12 13 Resource units 2 3 4 1 2 2 4 1 2 A partial compromise between the early and late extremes involves working from the late start times and pulling back some of the activities with float towards the early start times.Module 5 / Project Time Planning and Control 5 C 8 2 3 0 A 0 2 2 2 B 4 6 D 6 4 10 F 10 3 13 G 13 1 H 14 14 1 2 E 4 12 Figure 5. Project Management Edinburgh Business School 5/91 . C–F uses two resource units over two days.19 shows the effects of pulling back activities B–C and C–F to their early start positions but leaving the remaining activities in late start positions. it uses three resource units over three days. Activity C–F starts on day 5 rather than day 8.58 Network for resource smoothing Table 5. Table 5. In each case. Tables 5.20 and 5. Activity B–C starts on day 2 (early) rather than day 5 (late).

19 Day 10 9 8 7 6 5 4 3 2 1 X X X X 0 1 Partially balanced solution 2 3 4 5 6 7 8 9 10 11 12 13 X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X Note: the histograms shown in Tables 5. They do not represent absolute values.19 are intended to show broad variations in resource requirements. Figure 5.Module 5 / Project Time Planning and Control Table 5.59 shows 5/92 Edinburgh Business School Project Management .17. In the case of the bridge example.17 Day 10 9 8 7 6 5 4 3 2 1 X X X X 0 1 Early start values 2 3 4 5 X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X 6 7 8 9 10 11 12 13 Note: the X bars shown in the table are intended to show general fluctuations in resource demand.18 Day 10 9 8 7 6 5 4 3 2 1 X X X X 0 1 Late start values 2 3 4 5 6 7 8 9 10 11 12 13 X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X Table 5.18 and 5. 5. and the range and distribution of resource demand for each activity. Table 5. The height of the individual X-columns is not intended to represent absolute resource numbers The extent to which the resource profile can be levelled depends on the number and extent of critical items.

Module 5 / Project Time Planning and Control Table 5.7% which is higher than the unsmoothed utilisation. Project Management Edinburgh Business School 5/93 .20 A–B Day 0 1 2 3 4 5 6 7 8 9 10 11 12 13 2 2 Early start values (absolute values) Early start values B–C B–D B–E C–F D–F F–G E–G G–H Total 2 2 3 3 3 4 4 4 4 2 2 2 2 2 2 4 4 4 2 1 1 1 8 8 8 6 4 2 2 2 4 4 4 2 Resource units required Table 5. On this basis: resource smoothed utilisation = 222/(12 × 38) = 48.21 A–B Day 0 1 2 3 4 5 6 7 8 9 10 11 12 13 2 2 Early start values (absolute values) Late start values B–C B–D B–E C–F D–F F–G E–G G–H Total 2 2 4 4 4 3 3 3 2 2 1 1 4 2 2 2 2 4 4 4 1 2 8 8 8 6 4 2 2 2 4 4 4 2 Resource units required the resource utilisation and the resulting histogram after resource levelling has occurred.

In the bridge example. resource table and labour histogram for bridge project The levelling process produces a better resource utilisation percentage.Module 5 / Project Time Planning and Control Day number Mark out site Dig Foundations A Concrete Foundation A Cure Foundation A Dig Foundations B Concrete Foundation B Cure Foundation B Dig Foundations C Concrete Foundation C Cure Foundation C Erect Tower A Erect Tower B Erect Tower C Erect west span Erect east span Total unskilled labour 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Gantt chart for bridge broject after resource levelling Day number Mark out site Dig Foundations A Concrete Foundation A Cure Foundation A Dig Foundations B Concrete Foundation B Cure Foundation B Dig Foundations C Concrete Foundation C Cure Foundation C Erect Tower A Erect Tower B Erect Tower C Erect west span Erect east span Total unskilled labour 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 2 2 2 2 2 4 4 4 5 5 1 1 1 1 1 1 1 1 5 5 5 5 5 5 7 7 7 7 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 4 4 4 4 6 6 6 1 1 1 1 1 1 1 1 1 1 3 5 5 5 3 3 5 5 5 5 5 4 4 4 4 2 2 2 2 2 5 5 9 9 9 9 11 11 11 7 7 7 7 7 7 3 3 3 3 3 3 3 3 4 4 5 5 8 9 9 9 9 5 0 Unskilled labour resource table for bridge project after resource levelling 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 12 11 10 9 8 7 6 5 4 3 2 1 Labour histogram for bridge project after resource smoothing Figure 5. Fewer people means lower fixed overhead costs. The process also provides a number of associated advantages. This has implications for the overall coordination and control demands on the project manager and may also have a cost implication. the employees would require accommodation. transportation and other forms of support that would carry a fixed overhead cost. • Reduced peaks in resource demand means that there are fewer people on the project at any one time. Some of these are listed below.59 Resource-smoothed Gantt chart. Edinburgh Business School Project Management 5/94 .

they embrace every aspect of the organisation.6 5. This general increase in risk can be offset to some extent by the project-risk management system (see Module 3). the available float on the tower A activity has been used and this activity has now become critical. In the case of fully integrated business systems. This can be significant where there are direct operational linkages between activities. Having recognised the inherent need within large-scale projects to store and process large amounts of information. Today. In the bridge example. Recent history records that project management tools and techniques grew hand in hand with the development of computerised information systems.Module 5 / Project Time Planning and Control • • • Individual people work for a longer period on the project. This has benefits in relation to the development of team working and learning curves.6. 5. As float generally is consumed. The characteristics of complex data management that are so crucial to successful project management have driven the information technology developments in this field. Project Management Edinburgh Business School 5/95 . Systems were then developed to help control projects as well as plan them. the consequences of any delay increase and so does the overall level of project risk. the cost of technology in those days restricted use to only the very largest projects. and early project management systems had a network planning capability and not much else. Increased criticality is an unavoidable consequence of resource levelling.1 Project Planning Software Introduction Information technology plays an ever-increasing role in all management fields and in none more so than project management. Reduced float times on individual activities can lead to greater continuity between activities. and that computer system will embrace every aspect of the project. computer network planning became more widely used across technology-based industries. The pioneers of project management techniques in the aerospace. and concepts such as earned value analysis (EVA) required an ongoing ability to process large quantities of information throughout the life of the project. The project manager has to constantly check the network and monitor the development of new near-critical and critical paths. Reduced activity durations may have an implication for external subcontractors. As costs reduced over the years. the levelling process becomes more complex. project management systems were developed and used as early as the 1960s. Project management techniques were also evolving. Of course. it would be almost inconceivable for all but the smallest of projects to be managed without a computer-based system. engineering and defence industries were willing participants in the growth and development of information systems. Resource levelling may reduce the overall time that a particular subcontractor is required to attend the project and in turn produce overall cost reductions. As more than one critical path develops.

5. service companies.2 Advantages of Computer-based Project Planning and Control The use of project management software is almost universal and there are few doubts as to the benefits to its effectiveness. improved visibility. Good software gives particular time savings in replanning after trade-off analysis. Project management as a management paradigm has expanded rapidly over the last five years as more and more companies understand the benefit to be gained from managing their entire business portfolio as a series of projects. There are a range of more powerful packages.Module 5 / Project Time Planning and Control For those companies which have adopted the disciplines of project management as a business management philosophy. non-specialist applications throughout the world. effective management of costs and schedules has been one of the greatest challenges of major aircraft-development programmes. information systems. This project planning package acts as a very useful introduction to computerised project planning and control. straightforward applications for planning and controlling relatively simple projects. The most obvious advantages include the following: • Speed Computerised project-planning software offers the obvious example of speed. Most students of project management will quickly become familiar with packages such as Microsoft Project.and field-proven techniques embodied in project management are rapidly being institutionalised as a new management culture across other expanding industries such as telecommunications. However once the software is in Edinburgh Business School Project Management • 5/96 . and other sectors where ‘time to market’ is a key business driver. the capabilities of their project management software can be a critical factor in the overall success of their business. Project management information systems can work in a range of environments.6. For example. Lockheed Martin’s current project management system clearly contributes towards its competitive advantage. It provides simple. The package itself can cost several thousand pounds and the necessary staff training and development can cost much more. It is widely used for standard. The responsiveness and effectiveness of the project management software can be one of their major competitive advantages. Lockheed Martin tactical aircraft systems. One good package can produce the same planning information as a whole team of specialist planners and in a much quicker time. virtually all project planning and control is carried out using proprietary software. such as the international best sellers of Power Project Professional and Primavera. The project management system of Lockheed Martin continues to yield significant business benefits in terms of administrative cost savings. and reduced cycle time for analysis. has implemented a company-wide integrated project management system to support the goals of the joint strike fighter programme and to help ensure success in all company and supplier tasks. The time. In contemporary project management. in both the military and commercial sectors. the world’s leader in fighter aircraft production. Cost Modern high-performance software is initially expensive. These professional packages offer comprehensive and sophisticated applications for professional use.

There is often a tendency for people to produce reports and print-outs that contain too much information. or inadequate protection from external tampering or malicious viruses. Smaller companies which run projects only occasionally are often guilty of not taking adequate precautions to protect their project data.3 Disadvantages of Computer-Based Project Planning and Control Project managers generally take project-planning software for granted and regard it as a standard tool for what they do. the limiting factor is the processing capacity and speed of the computer that used.Module 5 / Project Time Planning and Control • • • place and staff have developed proficiency in the use of the various systems. the potential cost savings can be very significant. however. as an expensive professional. may be spending some of his or her time on what is really an ancillary support activity. Information dump Modern packages can store and process very large amounts of data and allow aspects of the project plan to be looked at from numerous different aspects. One skilled planner can effectively perform the same work as a whole team of skilled planners working on paper would have formerly required. along with IT in general. The operator can use the software to plan and control time and cost simultaneously. Any programme is only as reliable as the information that is input to it and the possibility of human error remains. This level and complexity of analysis is simply not possible on a manual basis.6. Information on resources can be stored within the system and automatic trade-off scenarios can be generated. Project planning software. The programs are very carefully checked and tested to ensure that the various calculations and presentations are accurate. The project manager or planner may find that he or she is spending an increasing amount of time in maintaining the various linkages and dependencies within the program rather than managing the actual project. Capacity Good packages offer enormous capacity and even very large projects with thousands of activities and resources can be accommodated. Over emphasis on system detail Very large project plans require a great deal of administration and attention to detail. This tendency may not be a problem as long as it is adequately controlled. Reliability Modern software is extremely accurate and reliable. There are. • Reliance The use of advanced software generates an automatic reliance and a consequent risk. Combined analysis Most modern packages offer combined analysis functions. that the project manager. some disadvantages associated with the use of project-planning software. however. simply Edinburgh Business School • • Project Management 5/97 . Even the most basic packages offer a multitude of different report formats and styles. The prudent project manager will ensure that all computerised data and records are adequately protected and backed-up but a surprising number of project managers do not take adequate precautions. It does mean. In most cases. has reached all levels of many industries. System information can easily be lost or corrupted as a result of faults in the IT system. 5.

Incorrect data will lead to incorrect reports and the degree or quality of report presentation does not alter this fact. especially where large numbers of staff are involved. should consider a number of issues. It is still common to find word processing staff using systems such as Word Perfect within networks that were converted to run on Microsoft operating systems several years ago. The project manager needs to exercise a degree of restriction and control over the output so that the important facts and figures are not confused within a mass of less important information.6. 5.4 General Factors for Consideration IT is so widespread in modern commerce and industry that virtually everybody takes it for granted. the main reason being the effort involved. Software manufacturers introduce frequent updates and these can often involve considerable additional functions and adaptations. Phasing out an old system and replacing it with a new system is itself a project and is subject to all the (hopefully now familiar!) issues of planning complexity and risk. Updates The maintenance in proficiency in modern software is an ongoing process.Module 5 / Project Time Planning and Control • because it is so easy to do so. Even with intensive training and testing support. The manufacturers of the more complex programs hold regular training seminars so that users can stay up to date with the latest developments to the system. This can be a danger as people have a natural tendency to accept well-presented material as being accurate. Software designers tend to use some common approaches but the detailed design of systems tends to be quite different. Project planning software is a specific IT application and is somewhat specialised in its use. As discussed above. it can take three to six months for a new system to be installed and commissioned up to a level where it is reliable. Intensive retraining can also be a source of stress among staff and acts as a catalyst for conflict. There is also the problem of parallel integration. Transition Transition may be a problem where a company is changing from one system to another. • Lead-in time Modern packages are very complex and it can take a long time for staff to develop full proficiency in the use of the system. People who have built up a detailed knowledge of one system tend to have natural reluctance to switch to a new system. A company that is thinking of purchasing a project planning system. or replacing an existing system. Edinburgh Business School Project Management • • • 5/98 . Training Staff training can be a time consuming and expensive process. Potential misdirection Modern packages can produce very detailed and professional looking reports. Different departments often feel that they are being unfairly pressurised into retraining earlier or more quickly than other departments. the system is only as accurate as the information that is input to it. Training on new systems has the effect of reducing the availability of resources for use in existing systems and this can have an adverse effect on the overall profitability of the organisation.

• The system should be useable. it is standard practice to run some kind of configuration management system (CMS). but keeping up to date with the latest developments consumes time and money that could be used elsewhere.1 System Critical Success Factors Project-planning software can be considered in terms of a number of critical success factors.Module 5 / Project Time Planning and Control • • Such seminars are useful and they do allow staff to use the software to its full potential. There are obvious security considerations to allowing contractors and other external organisations to have direct access to the project database.4. Most people expect a cost report to have a certain type of appearance. In some cases. The most successful complex packages produce displays and outputs that are compatible with what users expect. Ideally. Using a CMS. Wider compatibility The logical extension of the CMS system is to link the central network to external consultants and even (in some cases) to external contractors and suppliers. Staff will respond much more readily to such software than they would to unapproachable systems. 5. The package itself and the supporting documentation did not contain the amount of information required for a new user to learn how to use the system. but there are also significant potential advantages. Modern packages are more approachable. which runs on centralised network software serving a number of remote users. There are a number of generally accepted program success factors. A particular engineering company might win a contract to carry out maintenance and repairs on a power station. It should typically show the budget limit for a particular work package. The systems should use familiar displays. how much has been spent to date and what level of progress has been made in Edinburgh Business School • Project Management 5/99 . This kind of approach is used already on large-scale term maintenance contracts. repair requests can be e-mailed directly to the contractor for online estimating and programming. A CMS is a centralised information management system and is usually based on a central server. but large project-planning packages can still appear to be daunting to the uninitiated. The project-planning software used on a networked system is accessible by a number of different people. even the most complex packages should be readily approachable and should offer support and assistance to new users.6. The only way to learn to use them was to be shown how by an expert. Some of the early DOS-based estimating and planning packages were particularly bad for this. even if the access is restricted to read-only. Most people have encountered software that is not ‘user-friendly’. These are the characteristics of the system that determine how useable it is in terms of delivering project success criteria. This multi-user approach means that the project manager and planners have to have an awareness of networks and the corresponding security and access implications that are involved. work re-measurement and payments are also made online. Some programs seem to be very difficult to understand and do not give the user any support or advice where problems are encountered. Networking On large projects.

most systems will produce good-quality Gantt charts and network diagrams. where the same resource is required in two places at the same time) and may be capable of levelling resources across the project. The end result is that PCs become obsolete very quickly as only the latest chips can run the latest version of the software. Where costs are allocated to resources. Complex software increasingly incorporates a degree of over design. The amount of information that each person can obtain and the level of access that is permissible is restricted by individual authority clearance levels. Many of the functions that are not used are in fact designed to lead in to the next version of the software. They are all likely to have different interfaces (differences may be slight). every project management information system on the market today will be capable of at least one. they will look different on screen. It should also be forward looking and try to incorporate next generation ideas so that innovation supply stays ahead of demand.6. A centralised version of the project master schedule (PMS) is particularly important since most members of the project team have a considerable interest in it.4. They are simply designing systems that have built-in capacity for extension. The software should not be limited to what people want now. reports will look different. It will identify conflicts (e.g. and probably most.Module 5 / Project Time Planning and Control • • incurring these costs. 5. All systems can reschedule and update the information automatically when changes are made.5 General Features of Project Planning and Control Software Systems Every project management system available will have its own distinctive features. Most systems will be capable of critical path analysis. A common complaint about Microsoft Word is that it incorporates a great many functions and applications that nobody ever uses. Irrespective of what each individual system looks like and what it costs. The system should be CMS compatible. large and complex projects often use a configuration management system where all information is centralised and distributed to all members of the project team through remove PCs. The system should be extendable.6. Resource management Resources are allocated to each project activity and the system will calculate the resource loading for the project. The potential for extension is an important aspect of software design. The most effective displays and reports are those that present this standard information as clearly and as succinctly as possible. of the following: • Project planning Having defined the project activities and their dependencies. budgets and forecasts can be prepared. As discussed in section 5. This over-design results in the use of large amounts of ROM so that the microchip makers have to keep developing new and more powerful processors. The higher the clearance the greater the amount of information the person has access to within the DMS. Edinburgh Business School Project Management • 5/100 . and they may even emphasise different aspects of project management depending on the philosophy on which the system is based. This end result is not intentional on the part of Microsoft.

1 Project Management Edinburgh Business School 5/101 . For the project manager who wants merely to automate the process of laying out plans. • Open Plan.6. Mid-range products up to about 2000 tasks include: • Microsoft Project.6 Common Commercial Project Planning and Control Software Introduction There are many project management systems currently on the market. • Micro-Planner Manager. These are likely to cost from £1000 upwards. • Primavera Project Planner.Module 5 / Project Time Planning and Control • • • Tracking and monitoring Updating data.6. They cost from around £200 upwards. • Micro Planner X–Pert. including: 5. enables a system to monitor a project against the original plan and will highlight variances from the plan. it is possible to use this as a fixed reference point for the project as it progresses. ranging from the high-cost large-project management systems to the very low-cost end of the market catering for the project manager who simply wants good-quality charts. By establishing a baseline at the outset.6. there are plenty of low-cost packages available for under £100. including the ongoing status of each activity (i. preparing occasional status reports and producing some simple Gantt and PERT charts. Report generation Every system will generate a wide range of status reports covering most aspects of the project. Systems suitable for large or multi-project users include: • Power Project Professional. scheduling and tracking tools and they produce a vast array of reports. the percentage complete).e. from budgets and cash flows to resources and schedules. Analysis and decision aiding Some systems offer the capability of ‘what if’ analysis. • Cobra. There follow some of the more popular products available in each segment of the market. These software packages offer a tremendous range of planning. • Primavera Suretrak. without investing the time to master the more sophisticated tools. 5. • Enterprise PM. in any case. most will perform straightforward analysis that can be used in decision making. but. • Artemis Views 4. and require a significant investment in time and effort to master all the features.

multiproject management application. the system is an enterprise multi-user. The system has all the features required in a good-quality project management system (and a great many more). ProjectView Note: ProjectView is considered as one aspect of the package. The system provides users across functional disciplines with information and reports relating to business projects. Planning and scheduling features include capabilities to: • • • 5/102 build and update project schedules using graphical. and project analysis. define project relationships. and resource managers. resource and activity tracking. assign resources to activities across multiple projects. Artemis Views 4 is an enterprise business system incorporating project planning. resource tracking. Artemis Views 4 is an enterprise resource planning (ERP) system that integrates all levels and functions of the organisation for project management. 5. Quick Gantt. CostView – for project. Integrated with Enterprise Resource Planning (ERP) applications. Views 4 applications are similar to Microsoft’s office suite of desktop applications. manage and schedule projects. project cost control. Gantt or spreadsheetstyle interfaces. resource scheduling.6. Different users only need one application to do their particular job. Edinburgh Business School Project Management . and actual costs. and so implementation time and training costs are minimised. effort expended. cost control. and combines multi-user project planning. It is designed for use by project managers. and graphical reporting. This enables immediate project feedback for every level of the organisation. Views 4 provides separate role-based applications for project planning.6. Artemis Views 4 is reviewed here to give an idea of the kinds of facilities and functions that are available. project planners. Views 4 consists of: • • • • ProjectView – used to plan.2 Artemis Views 4 Package Overview Without endorsing any particular product. GlobalView – a reporting application that provides graphical project data analysis. contract and programme performance management and cost control.Module 5 / Project Time Planning and Control • • • Milestone Simplicity. giving them a familiar feel to the new user. and executive analysis and reporting. The system has a role-based approach to software design and implementation. Project Vision. cost control. TrackView – used to report and measure progress.

and EAC calculations. establish time-phased resource rates. To manage projects across the organisation for enterprise project planning. BCWS. control read/write access authority to project plans. create unlimited numbers of project combinations without the need to merge or duplicate data. BCWP. . Resource and cost management features include capabilities to: • • • • • • • • • cope with an unlimited number of resources per activity or project. Edinburgh Business School Project Management 5/103 . prepare standard cost reporting. WBS. globally update changes to project data by single or multiple projects. isolate projects and compare target dates and budgets at any level. including total content or at a constant rate. etc. ProjectView uses a graphical planning structure to organise and navigate projects by hierarchy. display resource usage for selected resources or skill groups. budgeting and earned value analysis. carry out ‘What if. consolidate projects using planning structures (i. including ACWP. schedule using resource and time constraints. break down complex programmes of work with planned costs and target dates into projects using a graphical planning structure. define access authority according to individuals or groups. . with actual deadlines and costs. tree or outline format. allocate resources by various techniques. resource pools. navigate projects by hierarchy. project manager.e. create virtual multiproject groups. integrate with the CostView cost control software for automated financial forecasting.?’ analyses. maintain up to 99 different versions of projects. Project definition and start-up features include capabilities to: • • • • • create templates and library projects. integrate with TrackView effort-tracking software for automated timesheet booking and progress updates.). define reference data to be shared between all projects. to support corporate processes and standards. and consolidation structures.Module 5 / Project Time Planning and Control • • • • • • prioritise activities during scheduling. OBS. including standard WBS and OBS. Project planning features include capabilities to: • • • • • • work in either tabular. identify budgeting or scheduling problems using an ‘early warning’ system. create milestones. and launch directly into project plans. carry out critical path analysis.

A project manager can then use this information to identify where problems are likely to arise in the future – for example. at any particular moment in time. Planning as a discipline effectively sets targets. cost and quality limits for any process. The project time planning and control process is only part of the contents of the generic project plan or strategic project plan (SPP). Project control procedures examine actual performance and track it over a period of time. and it is taken for granted in the management of everything from football teams to construction projects. Gantt and PERT charts. such as safety and reputation. These include an extensive assortment of pie. most project management planning and control tends to centre on these three variables. Other variables may also be considered. cost and quality performance. to cover all aspects of single and multiple project reporting.Module 5 / Project Time Planning and Control ProjectView includes a wide set of reporting and graphics tools to document and present project information. The project manager attempts to ensure that these targets are met through project control procedures. In order to be able to deliver on time. benefits planning and risk planning. The project SPP includes separate planning and control processes for time. where existing performance is likely to cause problems in the future. Most aspects of an enterprise can be planned. They then compare actual performance with theoretical performance in order to isolate variances. The SPP is a project document that includes all the information relevant to the planning process for the entire project. Planning is essential to most enterprises. cost and quality optimisation. and histograms. Edinburgh Business School Project Management • • • • • • • • • 5/104 . marketing planning. line and bar charts. cost and quality. and the planning process can aim at several different objective criteria. Learning Summary The Concept of Project Time Planning and Control • Project time planning and control are essential project management skills. Most projects evaluate success in terms of the optimisation of time. Variations in project success and failure criteria will affect the time planning and control process. As a result. These targets may subsequently be achieved or not. planning and control are always prerequisites. depending on the success of the project. and also a wide range of other planning elements including communications planning. These variances are then used as the basis for management reporting. but most of the immediate and non-statutory success objectives are related to time. in terms of time. If the value of quality suddenly increases. this will almost certainly generate an increased time requirement. cost and quality criteria. Planning is also a way of establishing where the project should be. financial planning.

Project time planning involves identifying. The collective assembly of all these individual sub-plans forms the generic SPP. Good project planning also requires considerable imagination and creativity and these characteristics are not universal. It requires an ability to look ahead and effectively integrate uncertainty with the more tangible aspects of planning such as estimating and scheduling. many thousands of activities with complex interdependencies and resources. Construction projects in particular tend to be more or less unique. and also for the others listed in the SPP pro forma in BS6079 (see Module 4).Module 5 / Project Time Planning and Control • • • • • • • Separate plans are required for each of the foregoing elements. A project plan must be established for all projects if effective project management techniques are to be applied. project uncertainty. it is usually possible to derive reasonably accurate estimates for most activity durations. project uniqueness. Perhaps the most difficult part of any planner’s job is to predict the activities required to complete the project with any reasonable degree of accuracy. in the case of large capital projects. The project time planning and control system is only one of numerous planning and control systems that collectively form the generic project plan. planning is most intense in the early stages. large changes at later stages in the project life cycle can have critical effects. Time replanning tends to become more complex as the project progresses. Project planning involves a systematic approach to working that not everyone is comfortable with. Major changes during the project will result in increased planning activity no matter what stage the project is at. Traditionally. No two projects are exactly the same and it is generally necessary to plan every project independently. The planning process must be robust enough to withstand rigorous testing and yet take account of the constantly changing environment in which the project exists. large project complexity. competence in planning and communicating the plan Most project planners base their time estimates for individual activities on their own knowledge and experience. Typical examples include sources of time planning data. In cases where similar projects have been run in the past. sequencing and scheduling information. Depending on the nature and size of the project. Edinburgh Business School • • • • Project Management 5/105 . this information can range from just a few activities and resources to. This applies more to some applications than to others. This replanning is a central requirement on most projects and can be one of the most complex areas that the project manager has to manage. Planning is carried out throughout the project life cycle. The intensity of planning activity varies over the life of the project. These factors influence the data and assumptions that are used in developing the planning and control system. people issues. The Process of Project Time Planning • The time planning process will vary in relation to a number of factors. In most projects.

nearly all projects have a SOW. cost and quality planning and control characteristics of the project. As well as the global uncertainties surrounding the project as a whole. It is a top-down approach in that it takes the work at the project level and breaks it down into individual work packages or components that can be subjected to individual and independent time. the same basic procedure is adopted up to a point. The Statement of Work (SOW) is the descriptive document that defines the overall content and limits of the project. Project work packages might vary in relation to the planning and control system concerned. a specification. This involves breaking the project down into some kind of work packages where individual targets for performance can be set for each such package. understandable and unambiguous. all schedules and some kind of measurement or quantification of the works to be done.Module 5 / Project Time Planning and Control • • • The risk of uncertainty is inherent throughout any project plan as in any plan. To achieve good workable plans. The number of WBS levels required increases with the size and complexity of the project and is determined by the need to define tasks at a level where Edinburgh Business School Project Management The Planning Process • • • • • • • • • 5/106 . In practice. The information must be issued in a format that is clear. cost or quality plans. the planning skill is best complimented by a good operational and technological understanding of the project itself. as they cannot be efficiently managed or executed unless the managers and administrators can define the boundaries and limits of the project. the SOW is usually contained in the contract documents. For a US or European project. A work breakdown structure (WBS) is a representation of how large tasks can be broken down into smaller and more manageable sub-tasks. the project cannot be planned or controlled at this level as it is too big. Planning is strategic in that work packages are projected forward so that an overall sequence of execution can be derived. In the UK this would comprise a full set of production information. assembled in such a way that it can be accurately priced by a tenderer. It is necessary to break the whole down into individual components that can be individually evaluated and managed. Planning large projects is a highly complex and specialised skill. It requires an in-depth knowledge of sophisticated planning techniques and systems. The level of definition of work package will depend on the nature and type of project. stakeholders must be fully informed of all their responsibilities. If a project plan is to be effectively implemented. there are elements of uncertainty within each of the planned activities and all of the assumptions made during the planning process. The SOW includes all the work that has to be done in order to complete the project. A package for cost control purposes might not match the packages defined for quality management purposes. This process is sometimes referred to as the top-down strategic (TDS) approach to project planning. However. This sequence will determine the time. Irrespective of whether the project manager is developing time. cost and quality control.

Both approaches use an essentially similar concept. Replanning is often necessary because the Draft Master Schedule produced by the project manager is just that – a draft.Module 5 / Project Time Planning and Control • • • • • • • • • • they are manageable and achievable. namely the path through the project that has the longest total activity duration times. CPM is used where deterministic calculations can be used. the calculations are used as the basis for evaluating the individual and overall times that are applicable to the project. The duration of the critical path defines the expected duration of the project under normal circumstances. Typical reasons why it might not be acceptable are Edinburgh Business School Project Management 5/107 . The DMS is a complete network analysis or programme for the project showing start and finish times for each activity. It is presented to the client as one possible solution for the planning and control of the project. They are not simply used once to arrive at overall and individual completion dates. These are based on the critical path method (CPM) or on the programme evaluation and review technique (PERT). Networking is the process of defining project logic in terms of the sequence of required activities. whereas a project such as a launching a global marketing campaign for a consumer product may have six or more levels. In both CPM and PERT cases. there are two primary alternatives. the times taken to execute each of the stages in making a cup of tea. for sections of the project and for the project as a whole. The end result of the scheduling process is the Draft Master Schedule (DMS). but the calculations used and applications of each are quite different. By using specific analysis techniques. Project logic evaluation (PLE) is the process of taking the WBS work packages that have already been identified. The DMS also identifies the project’s critical path. and showing the sequence in which they are to be carried out. it is also possible to calculate start and finish times for groups of activities. and then assigning durations to these activities. The critical path through any network diagram is the longest path. Small projects such as preparing a simple brochure may require as few as three levels. PERT is used where component activity times cannot be accurately calculated or are not known. such as making a cup of tea with a faulty kettle that may or may not work properly. This is important for time. it may or may not be acceptable. It is therefore the path of activities that determines the overall project completion date. cost or quality evaluation. In terms of assigning activity durations. The most popular method for producing a draft master schedule (DMS) from a precedence diagram or network is to use the critical path method (CPM). Deterministic values are applicable where times for activities can be calculated or are known with reasonable accuracy – for example. They are also used as the basis for the replanning process. Scheduling is the process of calculating individual activity times in order to allow an estimate for the completion date to be calculated. which is an essential feature of most project planning and control.

new statutes and codes of practice. a project manager offers replanning advice based on the functional relationship between time and cost. The other major consideration is the critical path. errors etc. The replanning process is just as important as the initial planning process. The client can look at this curve and can see how much it will cost to meet a range of different time options. as opposed to manual methods. client requirements may change. A requirement for trade-off occurs because project conflicts arise. There is no point in crashing non-critical items as any time saved on these items will not reduce the overall project or package completion date. The cost of crashing is a function of resources limits and availability. Additional resources may be immediately available at the same or greater unit cost. success and failure criteria. etc. The curve should always rise more and more steeply as the unit crash cost increases for the later items and the cumulative effect is significant. This could be because of changes to project objectives. The objective is to look at that relationship for the process concerned and to generate a curve showing alternative cost and time scenarios. planning regulations may alter etc. The crash sequence will usually start with the cheapest unit crash-cost item and progress to the most expensive unit crash-cost item. resources on an activity can only be increased up to a point. and inaccurate original forecasts and Edinburgh Business School Project Management • • 5/108 . Change notices and variation orders will be issued throughout the project execution phase. is used almost exclusively. • • • Trade-Off Analysis • Crash analysis is one aspect of trade-off analysis. or it is too heavily resourced and the overall cost has to be reduced. Changes in project environment.Module 5 / Project Time Planning and Control • that it finishes the project too late and time savings are required. The main types of causes for trade-offs are human error and mechanical failure. Each scenario seeks to establish the functional relationship between two of these variables while assuming that the third element is fixed or constant. This will generally appear as a negative curve. problems of uncertainty and totally unexpected problems. Project Replanning • In crash analysis. there will be immediate requirements to change it. Replanning tends to be a complex operation and is one of the main reasons why project planning software. changes in company corporate strategy. rising more and more steeply away from the origin (original project time and cost). There can also be trade-offs between time and performance and cost and performance. As soon as a schedule has been produced. The crash example in the text considered the trade-off between time and cost. It is therefore essential that the crash sequence contains only those items that are on the project or package critical path. In addition. incompatibilities. available later at the same or increased unit cost.

Gantt Charts • In its simplest form. Gantt charts provide an effective tool for planning and monitoring. What is likely is that they are also required for other jobs. They require little training to produce and give a very easy to understand visual image.2 All project time planning and control systems are based on setting targets and then monitoring actual performance against planned performance. and dependency. a vertical list of tasks and a horizontal line or bar drawn to scale to represent the time needed to complete each task or activity. The use of project planning software offers advantages of speed. • • Project Planning Software • • In contemporary project management. T or F? 5.Module 5 / Project Time Planning and Control planning are all potential sources for conflict and a requirement for trade-off analysis. economy. T or F? 5. • Review Questions True/False Questions The Concept of Project Time Planning and Control 5. capacity.1 Time planning and control can be considered in isolation from other project success variables. efficiency. T or F? Project Management Edinburgh Business School 5/109 .4 A project time plan is only one form of plan contained within the overall strategic project plan (SPP). isolation. Resource levelling allows peaks and troughs in resource demand to be evened out allowing more consistent use of resources. the Gantt chart consists of a horizontal time scale. information overload. T or F? 5. Resource scheduling is critical in any resource-driven application. and some degree of prioritisation will be required. accuracy and the ability to cope with large amounts of complex data.3 Project time planning systems are obsolete as soon as they are prepared. • Resource Scheduling • Most organisations do not have idle staff and equipment waiting to carry out a particular activity on a particular project. Disadvantages include the systems management requirement. virtually all project planning and control is carried out using proprietary software.

7 Post-contract time planning is less effective than pre-contract time planning. T or F? 5. T or F? 5. T or F? 5/110 Edinburgh Business School Project Management . T or F? 5.17 All WBSs must have six levels. T or F? 5.15 A work breakdown structure (WBS) breaks the project down into components that can be subjected to different planning and control systems. the larger and more complex the project.19 A precedence diagram is essentially a WBS that has been developed in terms of showing work execution sequences. the greater the need for effective project time planning and control. based on known activity durations.21 CPM is a deterministic approach. T or F? 5.8 In the case of most projects. It is therefore a form of project risk management.9 The majority of project time planning data is obtained from historical records and past experience. the critical path method.20 There is one primary form of scheduling.12 Generally. T or F? 5. T or F? 5.18 The project WBS defines the basic building blocks for the time.22 PERT is a probabilistic approach based on unknown durations. T or F? 5.23 Only CPM uses the analysis of the critical path. T or F? 5. there will be a requirement for some kind of pre-contract and post-contract replanning.10 All members of an organisation are happy to operate within a planned environment.5 A project time plan has only limited value if it is not used in conjunction with a cost plan and a quality plan.14 A statement of works (SOW) accurately defines the scope of the project. T or F? 5.16 All WBS operational systems operate at the same levels of control at all times. T or F? 5. T or F? 5.6 The project time planning and control process continues throughout the life cycle of the project. T or F? 5. T or F? 5. T or F? The Process of Project Time Planning 5.24 A project can only ever have one critical path.Module 5 / Project Time Planning and Control 5.13 Project time planning reduces uncertainty. T or F? 5. T or F? 5. cost and quality planning and control systems. T or F? 5. T or F? 5.11 All processes can be subjected to some form of time planning and control.

32 Resource levelling is a way of minimising resource demand. T or F? Project Planning and Control Software 5.30 The requirement for a trade-off is always generated within the project. Failure criteria. Project Management Edinburgh Business School 5/111 . T or F? Gantt Charts 5. T or F? Trade-Off Analysis 5. Other. cost or quality have to be changed in relation to each other. T or F? Resource Scheduling 5. T or F? Multiple Choice Questions The Concept of Project Time Planning and Control 5. Success and failure criteria.29 A type-7 trade-off is one where all three elements of time.25 Project replanning is only necessary because of changes in the pre-contract phase. T or F? 5.36 Most clients would define project parameters in terms of A B C D E time.27 Trade-off analysis is a way of providing alternative scenarios when time.31 A Gantt chart shows activities against dates. T or F? 5. all three. cost. 5. T or F? 5. T or F? 5.33 Resource levelling is appropriate in any type of project. any two. performance.35 Most clients set project objectives that are based on which of the following? A B C D Success criteria.26 Project replanning uses trade-off analysis as