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PROJECT

MANAGEMENT
A Systems Approach to
Planning, Scheduling,
and Controlling
E I G H T H E D I T I O N
H A R O L D K E R Z N E R , P h . D .
Division of Business Administration
Baldwin-Wallace College
Berea, Ohio
John Wiley & Sons, Inc.
MANAGEMENT
PROJECT
Dr. Kerzner's 16 Points to Project
Management Maturity
1. Adopt a project management methodology and use it consistently.
2. Implement a philosophy that drives the company toward project man-
agement maturity and communicate it to everyone.
3. Commit to developing effective plans at the beginning of each project.
4. Minimize scope changes by committing to realistic objectives.
5. Recognize that cost and schedule management are inseparable.
6. Select the right person as the project manager.
7. Provide executives with project sponsor information, not project man-
agement information.
8. Strengthen involvement and support of line management.
9. Focus on deliverables rather than resources.
10. Cultivate effective communication, cooperation, and trust to achieve
rapid project management maturity.
11. Share recognition for project success with the entire project team and
line management.
12. Eliminate nonproductive meetings.
13. Focus on identifying and solving problems early, quickly, and cost ef-
fectively.
14. Measure progress periodically.
15. Use project management software as a tool-not as a substitute for ef-
fective planning or interpersonal skills.
16. Institute an all-employee training program with periodic updates based
upon documented lessons learned.
PROJECT
MANAGEMENT
A Systems Approach to
Planning, Scheduling,
and Controlling
E I G H T H E D I T I O N
H A R O L D K E R Z N E R , P h . D .
Division of Business Administration
Baldwin-Wallace College
Berea, Ohio
John Wiley & Sons, Inc.
This book is printed on acid-free paper.
Copyright © 2003 by John Wiley & Sons, Inc. All rights reserved
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L/brary af Cangress Cata/ag/ng-/n-Pab//cat/an Data:
Kerzner, Harold.
Project management : a systems approach to planning, scheduling, and controlling /
Harold Kerzner.--8th ed.
p. cm.
Includes bibliographical references and indexes.
ISBN 0-471-22577-0 (cloth : alk. paper)
1. Project management. I. Title.
HD69.P75 K47 2002
658.4 04--dc21
2002028892
Printed in the United States of America.
10 9 8 7 6 5 4 3 2 1
To
Dr. Herman Krier,
my Friend and Guru,
who taught me well the
meaning of the word ¨persistence'
Contents
 
1 OVERVIEW 1
1.0 Introduction 1
1.1 Understanding Project Management 2
1.2 Defining Project Success 6
1.3 The Project Manager-Line Manager Interface 7
1.4 Defining the Project Manager`s Role 9
1.5 Defining the Functional Manager`s Role 11
1.6 Defining the Functional Employee`s Role 14
1.7 Defining the Executive`s Role 14
1.8 Working with Executives 15
1.9 The Project Manager as the Planning Agent 16
1.10 Project Champions 17
1.11 The Downside of Project Management 18
1.12 Project-Driven versus Non-Project-Driven Organizations 19
1.13 Marketing in the Project-Driven Organization 21
1.14 Classification of Projects 23
1.15 Location of the Project Manager 24
1.16 Differing Views of Project Management 26
1.17 Concurrent Engineering: A Project Management Approach 27
Problems 27
Case Study
Williams Machine Tool Company 30
vii
2 PROJECT MANAGEMENT GROWTH: CONCEPTS AND
DEFINITIONS 33
2.0 Introduction 33
2.1 General Systems Management 34
2.2 Project Management: 1945-1960 34
2.3 Project Management: 1960-1985 35
2.4 Project Management: 1985-2003 47
2.5 Resistance to Change 51
2.6 Systems, Programs, and Projects: A Definition 55
2.7 Product versus Project Management: A Definition 58
2.8 Maturity and Excellence: A Definition 59
2.9 Informal Project Management: A Definition 60
2.10 The Many Faces of Success 61
2.11 The Many Faces of Failure 64
2.12 The Stage-Gate Process 67
2.13 Project Life Cycles 69
2.14 Project Management Methodologies: A Definition 75
2.15 Change Management and Corporate Cultures 77
2.16 Systems Thinking 82
Problems 85
3 ORGANIZATIONAL STRUCTURES 87
3.0 Introduction 87
3.1 Organizational Work Flow 90
3.2 Traditional (Classical) Organization 91
3.3 Developing Work Integration Positions 94
3.4 Line-Staff Organization (Project Coordinator) 98
3.5 Pure Product (Projectized) Organization 99
3.6 Matrix Organizational Form 102
3.7 Modification of Matrix Structures 111
3.8 Center for Project Management Expertise 115
3.9 Matrix Layering 115
3.10 Selecting the Organizational Form 117
3.11 Structuring the Small Company 124
3.12 Strategic Business Unit (SBU) Project Management 127
3.13 Transitional Management 128
Problems 130
Case Study
Jones and Shephard Accountants, Inc. 136
viii CONTENTS
4 ORGANIZING AND STAFFING THE PROJECT OFFICE AND
TEAM 139
4.0 Introduction 139
4.1 The Staffing Environment 140
4.2 Selecting the Project Manager: An Executive Decision 142
4.3 Skill Requirements for Program Managers 148
4.4 Special Cases in Project Manager Selection 153
4.5 Selecting the Wrong Project Manager 154
4.6 Next Generation Project Managers 157
4.7 Duties and Job Descriptions 159
4.8 The Organizational Staffing Process 163
4.9 The Project Office 168
4.10 The Functional Team 174
4.11 The Project Organizational Chart 176
4.12 Special Problems 179
4.13 Selecting the Project Management Implementation Team 181
Problems 184
5 MANAGEMENT FUNCTIONS 191
5.0 Introduction 191
5.1 Controlling 193
5.2 Directing 193
5.3 Project Authority 197
5.4 Interpersonal Influences 205
5.5 Barriers to Project Team Development 208
5.6 Suggestions for Handling the Newly Formed Team 213
5.7 Team Building as an Ongoing Process 215
5.8 Leadership in a Project Environment 216
5.9 Life-Cycle Leadership 217
5.10 Organizational Impact 220
5.11 Employee-Manager Problems 221
5.12 Management Pitfalls 225
5.13 Communications 227
5.14 Project Review Meetings 237
5.15 Project Management Bottlenecks 237
5.16 Communication Traps 238
5.17 Proverbs 240
5.18 Management Policies and Procedures 240
Problems 243
Case Studies
The Trophy Project 253
 ix
Leadership Effectiveness (A) 254
Leadership Effectiveness (B) 259
Motivational Questionnaire 265
6 TIME MANAGEMENT AND STRESS 273
6.0 Introduction 273
6.1 Understanding Time Management 274
6.2 Time Robbers 274
6.3 Time Management Forms 276
6.4 Effective Time Management 277
6.5 Stress and Burnout 278
Problems 280
Case Study
The Reluctant Workers 281
7 CONFLICTS 283
7.0 Introduction 283
7.1 Objectives 284
7.2 The Conflict Environment 285
7.3 Conflict Resolution 288
7.4 Understanding Superior, Subordinate, and Functional
Conflicts 289
7.5 The Management of Conflicts 291
7.6 Conflict Resolution Modes 292
Problems 294
Case Studies
Facilities Scheduling at Mayer Manufacturing 297
Telestar International 299
Handling Conflict in Project Management 300
8 SPECIAL TOPICS 307
8.0 Introduction 307
8.1 Performance Measurement 308
8.2 Financial Compensation and Rewards 315
8.3 Effective Project Management in the Small Business
Organization 321
8.4 Mega Projects 323
x CONTENTS
8.5 Morality, Ethics, and the Corporate Culture 324
8.6 Internal Partnerships 327
8.7 External Partnerships 328
8.8 Training and Education 330
8.9 Integrated Product/Project Teams 333
Problems 335
9 THE VARIABLES FOR SUCCESS 339
9.0 Introduction 339
9.1 Predicting Project Success 340
9.2 Project Management Effectiveness 344
9.3 Expectations 345
9.4 Force Field Analysis 346
9.5 Lessons Learned 351
Problems 352
10 WORKING WITH EXECUTIVES 353
10.0 Introduction 353
10.1 The Project Sponsor 354
10.2 Handling Disagreements with the Sponsor 363
10.3 The In-House Representatives 363
Problems 364
Case Study
Corwin Corporation 368
11 PLANNING 377
11.0 Introduction 377
11.1 General Planning 380
11.2 Life-Cycle Phases 382
11.3 Proposal Preparation 386
11.4 Understanding Participants` Roles 386
11.5 Project Planning 387
11.6 The Statement of Work 388
11.7 Project Specifications 393
11.8 Milestone Schedules 395
11.9 Work Breakdown Structure 396
11.10 WBS Decomposition Problems 402
11.11 Role of the Executive in Project Selection 406
 xi
11.12 Role of the Executive in Planning 410
11.13 The Planning Cycle 411
11.14 Work Planning Authorization 412
11.15 Why Do Plans Fail? 413
11.16 Stopping Projects 414
11.17 Handling Project Phaseouts and Transfers 415
11.18 Detailed Schedules and Charts 416
11.19 Master Production Scheduling 419
11.20 Program Plan 421
11.21 Total Project Planning 426
11.22 The Project Charter 430
11.23 Management Control 431
11.24 The Project Manager-Line Manager Interface 434
11.25 Fast-Tracking 436
11.26 Configuration Management 437
Problems 438
12 NETWORK SCHEDULING TECHNIQUES 449
12.0 Introduction 449
12.1 Network Fundamentals 452
12.2 Graphical Evaluation and Review Technique (GERT) 456
12.3 Dependencies 456
12.4 Slack Time 457
12.5 Network Replanning 463
12.6 Estimating Activity Time 467
12.7 Estimating Total Program Time 468
12.8 Total PERT/CPM Planning 469
12.9 Crash Times 471
12.10 PERT/CPM Problem Areas 475
12.11 Alternative PERT/CPM Models 476
12.12 Precedence Networks 478
12.13 Lag 481
12.14 Understanding Project Management Software 482
12.15 Software Features Offered 482
12.16 Software Classification 484
12.17 Implementation Problems 485
Problems 486
Case Study
Crosby Manufacturing Corporation 494
xii CONTENTS
13 PROJECT GRAPHICS 497
13.0 Introduction 497
13.1 Customer Reporting 498
13.2 Bar (Gantt) Chart 499
13.3 Other Conventional Presentation Techniques 506
13.4 Logic Diagrams/Networks 509
Problems 510
14 PRICING AND ESTIMATING 511
14.0 Introduction 511
14.1 Global Pricing Strategies 512
14.2 Types of Estimates 513
14.3 Pricing Process 516
14.4 Organizational Input Requirements 519
14.5 Labor Distributions 520
14.6 Overhead Rates 524
14.7 Materials/Support Costs 526
14.8 Pricing Out the Work 529
14.9 Smoothing Out Department Man-Hours 530
14.10 The Pricing Review Procedure 532
14.11 Systems Pricing 534
14.12 Developing the Supporting/Backup Costs 535
14.13 The Low-Bidder Dilemma 539
14.14 Special Problems 539
14.15 Estimating Pitfalls 540
14.16 Estimating High-Risk Projects 541
14.17 Project Risks 542
14.18 The Disaster of Applying the 10 Percent Solution to Project Estimates 546
14.19 Life-Cycle Costing (LCC) 548
14.20 Logistics Support 553
14.21 Economic Project Selection Criteria: Capital Budgeting 554
14.22 Payback Period 554
14.23 The Time Value of Money 555
14.24 Net Present Value (NPV) 556
14.25 Internal Rate of Return (IRR) 557
14.26 Comparing IRR, NPV, and Payback 558
14.27 Risk Analysis 558
14.28 Capital Rationing 559
Problems 560
 xiii
15 COST CONTROL 565
15.0 Introduction 565
15.1 Understanding Control 569
15.2 The Operating Cycle 572
15.3 Cost Account Codes 573
15.4 Budgets 580
15.5 Variance and Earned Value 580
15.6 Recording Material Costs Using Earned Value Measurement 598
15.7 The Material Accounting Criterion 601
15.8 Material Variances: Price and Usage 602
15.9 Summary Variances 603
15.10 Status Reporting 604
15.11 Cost Control Problems 610
Problems 612
Case Study
The Bathtub Period 623
16 TRADE-OFF ANALYSIS IN A PROJECT ENVIRONMENT 625
16.0 Introduction 625
16.1 Methodology for Trade-off Analysis 628
16.2 Contracts: Their Influence on Projects 645
16.3 Industry Trade-off Preferences 646
16.4 Conclusion 649
17 RISK MANAGEMENT 651
17.0 Introduction 651
17.1 Definition of Risk 653
17.2 Tolerance for Risk 654
17.3 Definition of Risk Management 655
17.4 Certainty, Risk, and Uncertainty 656
17.5 Risk Management Process 661
17.6 Risk Planning 662
17.7 Risk Assessment 663
17.8 Risk Identification 664
17.9 Risk Analysis 668
17.10 The Monte Carlo Process 675
17.11 Risk Handling 681
17.12 Selecting the Appropriate Response Mechanism 685
17.13 Risk Monitoring 686
17.14 Some Implementation Considerations 687
17.15 The Use of Lessons Learned 688
xiv CONTENTS
17.16 Dependencies between Risks 692
17.17 The Impact of Risk Handling Measures 696
17.18 Risk and Concurrent Engineering 699
Problems 703
Case Studies
Teloxy Engineering (A) 709
Teloxy Engineering (B) 710
18 LEARNING CURVES 711
18.0 Introduction 711
18.1 General Theory 712
18.2 The Learning Curve Concept 712
18.3 Graphic Representation 714
18.4 Key Words Associated with Learning Curves 716
18.5 The Cumulative Average Curve 718
18.6 Sources of Experience 720
18.7 Developing Slope Measures 723
18.8 Unit Costs and Use of Midpoints 724
18.9 Selection of Learning Curves 724
18.10 Follow-on Orders 726
18.11 Manufacturing Breaks 726
18.12 Learning Curve Limitations 727
18.13 Prices and Experience 729
18.14 Competitive Weapon 730
Problems 733
19 MODERN DEVELOPMENTS IN PROJECT MANAGEMENT 735
19.0 Introduction 735
19.1 The Project Management Maturity Model (PMMM) 736
19.2 Developing Effective Procedural Documentation 740
19.3 Project Management Methodologies 744
19.4 Continuous Improvement 745
19.5 Capacity Planning 750
19.6 Competency Models 751
19.7 Managing Multiple Projects 754
19.8 End-of-Phase Review Meetings 755
20 QUALITY MANAGEMENT 757
20.0 Introduction 758
20.1 Definition of Quality 759
 xv
20.2 The Quality Movement 761
20.3 Comparison of the Quality Pioneers 764
20.4 The Taguchi Approach 765
20.5 The Malcolm Baldrige National Quality Award 768
20.6 ISO 9000 769
20.7 Quality Management Concepts 771
20.8 The Cost of Quality 774
20.9 The Seven Quality Control Tools 777
20.10 Process Capability (

) 794
20.11 Acceptance Sampling 796
20.12 Operating Characteristic Curves 796
20.13 Implementing Six Sigma 799
20.14 Quality Leadership 802
20.15 Responsibility for Quality 803
20.16 Quality Circles 803
20.17 Just-in-Time Manufacturing (JIT) 804
20.18 Total Quality Management (TQM) 806
21 CONTRACTS AND PROCUREMENT 811
21.0 Introduction 811
21.1 Procurement 812
21.2 Requirement Cycle 813
21.3 Requisition Cycle 815
21.4 Solicitation Cycle 815
21.5 Award Cycle 817
21.6 Types of Contracts 818
21.7 Incentive Contracts 823
21.8 Contract Type versus Risk 825
21.9 Contract Administration Cycle 826
21.10 Using a Checklist 829
21.11 Proposal-Contractual Interaction 830
21.12 Summary 833
22 CRITICAL CHAIN PROJECT MANAGEMENT 835
22.0 Introduction 835
22.1 Anatomy of a Task Estimate 837
22.2 Task Execution 841
22.3 Protection in a Critical Chain Project 842
22.4 Buffer Management 847
22.5 Managing the Execution of a Critical Chain Project 848
22.6 Critical Chain Multiproject Problem and Solution 849
22.7 Implementing Multiproject Critical Chain 852
22.8 How Critical Chain Extends Critical Path 852
xvi CONTENTS
Problems 854
Case Studies
Lucent Technologies 855
Elbit Systems Ltd. 857
Seagate Technology 860
Appendix A. Solutions to the Project Management Conflict Exercise 863
Appendix B. Solution to Leadership Exercise 869
Author Index 875
Subject Index 877
Contents xvii