Project Management: A Managerial Approach, 9th Edition Instructor’s Resource Guide

Chapter 6
Project Activity and Risk Planning

CHAPTER OVERVIEW

Overview – This chapter introduces the process of project planning, which involves
identifying the specific goals of the project and breaking them down into achievable
tasks. The concepts of Work Breakdown Structure (WBS) and risk management are also
introduced.

6. Initial Project Coordination and the Project Charter – The project launch meeting is
an excellent way to begin the planning process. At this meeting the team is gathered
for the first time to allow them to develop a general idea about the requirements of
the project. The intent is not to present fully developed plans and schedules but
rather to present the project in general, so that the team members can develop
detailed plans and schedules for themselves, discuss resourcing, estimate
tolerances, define high-level risks and present them at subsequent meetings. After
the planning process is complete it is useful to have a postplanning review chaired
by an experienced project manager not previously involved with this project.
 Outside Clients – When the project involves an outside client, the
planning process must include the complete definition of the deliverables that
will be provided. This can be accomplished efficiently by involving the design
and marketing teams early in the planning process.The intent is to prevent
later surprises.E.g:The previously ignored manufacturing group announces
that they can’t build the design that has taken 10 months so far to be
developed.
 Project Charter Elements – The project charter is a high-level document
that helps to define the scope of the project. They vary from organization to
organization, but they should all have the following elements:
 Purpose – A short summary of objectives and project scope.
 Objectives – A more detailed statement of the general goals of the
project. This statement should include profit and competitive aims from
the Business Case as well as technical goals based on the Statement of
Work (SOW).
 Overview – A description of both the managerial and the technical
approaches to the work.
 Schedules –This section outlines the various schedules and lists
all milestone events and/or phase-gates.
 Resources – This element contains the budgets by task as well as
the cost control and monitoring plans.

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 Stakeholders – This section lists the key internal and external

stakeholders. It also contains a time phased plan for the people (or at
least the skills) required for the project.
 Risk Management Plans – This covers potential problems as well
as potential lucky breaks that could affect the project.
 Evaluation Methods – This section describes the methods used to
monitor, evaluate, collect, store, audit and evaluate the history of the
project.
 A Whole-Brain Approach to Project Planning – Typically, project
managers focus on the logical and analytical, left-brain activities related to
project management. A more balanced, whole-brain approach should be
used which utilizes the creative right side of the brain. One whole-brain
approach is mind mapping. It is essentially a visual approach that closely
mirrors how the human brain records and stores information. It helps to tap
the creative potential of the entire project team
 Activities are sequentially broken down into greater detail
 Team members are encouraged to use pictures and images to
represent activities
 It is a fast and effective tool to help minimize problems associated
with inadequate front-end planning
 Project Planning in Action – Plans can be constructed by listing the sequence
of activities necessary to complete the project. The nine segments of the
project are:
 Concept evaluation
 Requirements identification
 Design
 Implementation
 Test
 Integration
 Validation
 Customer test and evaluation
 Operations and maintenance

6. The WBS: A Key Element of the Project Plan

 The WBS – The work breakdown structure (WBS)isa tool used to capture the
decomposition of activities and the assignment of personnel. The WBS is not
one thing. It can take a wide variety of forms that, in turn, serve a wide variety
of purposes. The text suggests the following steps for WBS development:
 Break the tasks down into sufficient detail so that they can be
individually planned, budgeted, scheduled, monitored, and controlled.
The tasks at the bottom of the structure are typically called work
packages.

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 Identify the relevant supporting information needed for each work

package and the people who will work them.
 The work packages must be reviewed with the people involved to
ensure their accuracy and adequacy in describing the tasks to be
accomplished.
 The WBS can be used to capture the direct costs estimated or
budgeted for each task.
 The summary of the schedule information associated with each
work package can be summarized into a project master schedule.
 The process is iterative
 Both the planned schedule and budget for each work package can be
used as the baseline to measure performance as the project is executed.

6. Human Resources: The RACI Matrix and Agile Projects

Identifying and securing the right employees for project work is one of the most
important PM tasks. One way to identify the HR needs is to create an
Organizational Breakdown Structure (OBS). It shows the organizational units that
are responsible for the various work elements of the project. By creating RACI
matrixes and utilizing agile project methods, better management of human
resources can be attained.
 The Responsibility (RACI) Matrix – An approach to identify the human
resources needed for the project is to use the RACI (Responsible,
Accountable, Consult, Inform) matrix.The matrix shows critical interfaces
between units that may require special managerial coordination. With it, the
PM can keep track of who must approve what, who must be notified, and
other such relationships. The RACI matrix displays the WBS items in the left-
most column of a table.The individuals, groups, or units involved in the
project are displayed in the top row. The project manager then uses the
matrix to identify who is Responsible, who is Accountable (sometimes
Approval), who should be Consulted, and who should be Informed.
 Agile Project Planning and Management – Traditional methods are
insufficient, if an organization finds it difficult to define the project adequately
in the shortest possible time. In other situations, change occurs too
frequently. In situations like theseagileprojectmanagement (APM) may be
effective. APM requires close and continual contact between the project team
and the clients. Project requirements are a result of client/developer
interaction, and the requirements change as the interaction leads to a better
understanding on both sides of the project requirements, priorities, and
limitations.

6. Interface Coordination Through Integration Management – Interface coordination is

the task of coordinating work across multiple groups. Multidisciplinary teams (MTs)
are often used to facilitate the coordination of technical issues. Techniques are

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available to assist this process by mapping the interdependencies between team

members.
 Managing Projects by Phases and Phase-Gates – One way to facilitate
interdisciplinary cooperation is to break the project into phases and
require the team to have specific deliverables at each phase. Then an
oversight process can evaluate the deliverables and decide whether the
project is ready to pass onto the next phase. This technique is applied in
addition to the normal cost and schedule control techniques associated
with projects.

6. Project Risk Management – This is the PMBOK knowledge area number 8. It

defines risk management as the systematic process for identifying, analyzing, and
responding to project risk.In recent years, considerably more attention has been
placed on risk management. Of the elements involved risk management, the human
element is the most concerning.
 Seven processes exist:
 Risk Management Planning
 deciding how to approach and plan the risk management
activities for a project
 Risk Identification
 determining which risks might affect the project and
documenting their characteristics
 Qualitative Risk Analysis
 performing a qualitative analysis of risks and conditions to
prioritize their impacts on project objectives
 Quantitative Risk Analysis
 estimating the probability and consequences of risks and
hence the implications for project objectives
o Failure Mode and Effect Analysis
o Decision Tree Analysis
o Monte Carlo Simulation
o Sensitivity Analysis
o Dealing with Project Disasters
 Risk Response Planning
 developing procedures and techniques to
enhanceopportunities and reducethreats to the project’s
objectives
 Risk Monitoring and Control
 monitoring residual risks, identifying new risks, executing
risk reduction plans, and evaluating their effectiveness
throughout the project life cycle
 The Risk Management Register

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 creating a permanent register of identified risks, methods

used to mitigate or resolve them, and the results of all risk
management activities

TEACHING TIPS

Like many subjects in project management, this topic will benefit from a good example.
One way to provide it is to do an in-class planning exercise. To prepare this exercise the
instructor needs to select a project.Everyone in the class should be familiar with this
project. If a specialized technical topic is chosen (e.g. refueling a nuclear power plant),
then all the class members may not be able to fully participate due to their lack of
knowledge in the subject. I have had success with picking smaller, more accessible
topics that are familiar to a wide range of students. Specifically, I have used “Planning a
company picnic” for the exercise. While it may not sound very interesting on the surface,
the picnic has some surprising complications that the students will discover during the
planning process.

To begin the exercise the instructor gives the class some background information about
their pretend company and a very brief description of the project. The description is
deliberately brief to simulate the typically meager direction that management supplies in
these circumstances. The students work in pairs to brainstorm the outline of the project
plan trying to answer key questions like:
 What is the purpose of the project?
 Who are its customers?
 What constraints are imposed by the company?

The process of answering these questions forces students to ask a lot of questions
which the instructor, as the “sponsor” should answer. This gives the instructor a lot of
opportunities to emphasize the idea that the early project formation process is one
dominated by questions intended to reveal the sponsor’s and customer’s true
requirements.

As the authors of the text correctly point out, there are many formats available for project
plan deliverables. If the instructor does not have a preferred format to use for this
exercise, Martin and Tate describe a method, one that I have found useful,called the
Project Management Memory Jogger™. This tiny book can be an excellent supplement
to the text by presenting a number of specific formats for planning deliverables.

PROJECT MANAGEMENT IN PRACTICE

Disaster Project Planning in Iceland

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Question 1:Given a nation so prone to disasters, why do you think it took so long
to formulate a contingency disaster plan?
The Icelandic environment consists of a number of small communities that function in a
relatively independent manner in matters of a public nature. In such societies, central
planning would not usually be a natural tendency in the absence of compelling
circumstances.

Trying to Install a Wind Farm in the Middle of the North Sea

Question 1:Contrast the difficulties and risks of this project with those of NASA in
the “Ignoring Risk . . .” PMIP sidebar in Section 6.4.
The difficulties and risks in this case study were much less significant than with the
NASA example. Although both cases highlighted major risks, they were different in each
case. In this example (Wind Farms), many of the risks involved having everything ready
before being shipped to location. In addition, if there were any problems, they had to
come up with a solution as soon as possible and they did this by involving multi-
disciplinary teams.

Question 2:How important was it to have just the right competencies and
dependabilities on the multidisciplinary teams?
It was imperative to have the correct competencies and dependabilities on the teams.
Without these two criteria solving problems would have been much more painful and
finding solutions would have been much more difficult.

Question 3:Relate the detail of their “quality plan for each key event” to what you
might expect their WBS looked like.
Students’ answers are expected to vary considerably based upon their background and
the choice of the WBS method.

MATERIAL REVIEW QUESTIONS

Question 1: Describe the approach of agile project management and how it differs
from the normal approach.
APM is distinguished by close and continuing contact between clients (users) and staff
working on the project, and an iterative and adaptive planning process. This approach is
best suited for situations in which the scope of the project cannot be sufficiently
determined in advance.The scope is progressively determined as the project
progresses. It can be viewed as a flow process where work is performed for short
“sprints” and then the project members gather to discuss the progress thus far and what
work should be completed next.
It differs from the traditional approach, where there is significant planning initially to
define the entire project including all of the tasks to be completed.

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Question 2: Any successful project charter must contain nine key elements. List
these items and briefly describe the composition of each.
Refer to Section 6.1 in the text. The eight key elements of any project charter are:
1) Purpose: The purpose contains a brief summary of the project’s scope and its
objectives.
2) Objectives: The objectives should reflect how the project would satisfy
requirements in the dimensions of performance, time, cost, and customer
satisfaction. Objectives should also be set with respect to business impact and
future growth potential.
3) Overview:This section will describe the managerial and technical approaches
used to complete the project.
4) Schedules: The master schedule will be derived from the individual schedules for
resources. Milestones will be used to indicate significant events in the project’s
lifecycle.
5) Resources: The project’s budget will document both capital expenses and
operating expenses by task. The procedures for cost monitoring and control will
also be described.
6) Stakeholders: These include anyone, inside or outside of the organization, that
has an interest in the project.
7) Personnel: This section covers the types and quantities of human resources
needed to complete the project. It should document unique requirements related
to issues such as security clearances, skill sets, EOE, and local content issues
related to hiring and ownership practices.
8) Risk Management Plans: This section describes how uncertainty will be
managed in the project. Its intent is to identify opportunities and threats.
Contingency plans are developed to respond to important risk events should they
arise during the project’s lifecycle
9) Evaluation Methods: This section describes the monitoring and control
procedures used to run the project and to assess its success.

Question 3: What are the general steps for managing each work package within a
specific project?
Refer to Sections6.3 and 6.2in the text. The general steps for managing each work
package in a specific project are:
1) Decompose the work packages into the smallest work elements
necessary to plan, budget, schedule, and control the work. When sequencing
project activities, logical relationships and direct costs are often driven by the
activities inside the work package.
2) Create a work statement that includes inputs, specification references,
contractual stipulations, and expected performance results. It may prove useful to
construct the Linear Responsibility Chart (LRC) to document which resource is
responsible for each activity in the work package.
3) List contact information for vendors and subcontractors.

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4) For work that is new, difficult, or important, establish detailed end-item

specifications.
5) Establish cost centers to assign budget responsibilities and to track
performance against plans. Assign the appropriate types and quantities of
resources to each work center.
6) Establish the activity durations and logical relationships. Develop a
preliminary project schedule.
7) Review the WBS, activity lists, budget, and schedules with the resources
that will perform the work.

Question 4: Describe the “hierarchical planning process” and explain why it is

helpful.
The hierarchical planning process decomposes deliverables during the processes of
scope definition and activity definition. (See PMBOK® Guide Fifth Edition sections 5.3
and 6.1.). The goal is that each level of the hierarchy has elements at about the same
level of detail. One purpose is to prevent overplanning the familiar, while under planning
the unfamiliar parts of the project.

Question 5: What is shown on a RACI matrix? How is it useful to a PM?

The RACI matrix shows the tasks to be performed, the groups doing the work, and who
should be responsible, accountable, informed, and consulted. With the RACI matrix the
PM can keep up with who must approve what, who must be notified, and other such
relationships.

Question 6: What should be accomplished at the initial coordination meeting?

Refer to Section 6.1 in the text. The project’s launch meeting should accomplish the
following goals:
1) Establish the technical scope for the project.
2) Participants accept responsibility for specific areas of performance.
3) Establish tentative, high-level schedules and budgets.
4) Create a risk management group for the project.

Question 7:Why is it important for the functional areas to be involved in the

project from the time of the original proposal?
Refer to Section 6.1 in the project. Involving functional areas in proposal development
may help an organization to avoid promising deliverables and/or performance that
cannot be delivered to the customer. This involvement is important in winning support
for the project from the people who are likely to loan the resources. In many cases,
those resources would like to provide input about what will be done, how it will be done,
how it will be priced, and when it will be accomplished.

Question 8:What are the basic steps to design and use the Work Breakdown
Structure?
Refer to Section 6.4 in the text. To design and use the WBS, the basic steps are:

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1) Decompose the action plan in sufficient detail so that each activity can be
individually planned, budgeted, scheduled, monitored, and controlled.
2) For each WBS work package, create a LRC.
3) Review the work packages with the responsible resources prior to
aggregating the activities for the project.
4) Convert the WBS into a Cost Breakdown Structure (CBS) that includes
budget data for direct costs, indirect costs, contingency reserves, and profit.
5) Create the master schedule.
6) Capture actual costs and schedule performance and track against the
baselines for budget and schedule.

Question 9:What is the objective of interface management?

Refer to Section 6.5 in the text. Interface management seeks to facilitate the process of
coordinating dynamic relationships between the various elements and stakeholders to
assist the project in meeting objectives for performance, time, and cost.

Question 10:Contrast the Project Plan, the Project Charter, and the WBS.
Refer to the Introduction in the text. The Project Plan is the complete set of documents
and data used to describe the project objectives, method, schedule and budget. The
Project Charter is a document in the project management plan that concentrates on the
schedule and required resources. The Work Breakdown Structure (WBS) is the subset
of the plan that displays a decomposition of the work to be executed by the project.

Question 11:Contrast milestones with phase-gates

Milestones are natural sub-project ending points where payments may occur,
evaluations may be made, or progress may be reassessed.Phase-gates are preplanned
points during the project where progress is assessed and the project cannot resume until
re-authorization has been approved.

Question 12:Describe how a risk matrix is constructed.

A risk matrix is constructed by placing the impact of threats on one axis and the
probability of those threats occurring on the other axis (see Figure 6-12). Threats in the
upper-right quadrant are more important than those in the other quadrants.

Question 13:How would a decision tree be useful for a project manager?

A decision tree is useful to a project manager when sequential events happen over time.
In these cases, the PM can look at the probabilities that a certain sequence of events will
occur and their potential impact on the project. Size and complexity also influence the
tree’s relevance.

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Question 14:Is the FMEA table more valuable than the risk matrix? Why (not)?
FMEA tables can be more valuable than a risk matrix because they consider the inability
to detect the risk in addition to the probability and impact.

Question 15:How far should the cause-effect diagram be broken down into
subfactors?
The cause-effect diagram should be broken down into as many subfactors as possible.
With more subfactors, a better understanding of the factors that affect a particular threat
or opportunity can be achieved.

Question 16:Contrast the risk responses for threats and for opportunities.
The risk responses for threats (avoid, transfer, mitigate, and accept) are generally
designed to minimize or eliminate the risk from the threats. Risk responses for
opportunities (exploit, share, enhance, and accept) are generally designed to maximize
the opportunity if it occurs.

Question 17: How can a mind map be used to facilitate project planning?
A mind map can be used to facilitate project planning by assisting in the development of
a project plan. Because project team members tend to find mind mapping enjoyable, it also
helps generate enthusiasm, helps obtain buy-in from team members, and often gets quieter
team members more involved in the planning process.

CLASS DISCUSSION QUESTIONS

Question 18: What percentage of the total project effort do you think should be
devoted to planning? Why?
The amount of planning should be proportionate to the degree of newness, importance,
and difficulty associated with realizing the required solution for a unique
need.E.g:Constructing a standard 1,800 square-foot residential home should require
less planning than that required to build the same house from scratch in less than four
hours. (The San Diego Builders Association did this feat as a promotional project. The
four-hour execution of the project required almost nine months to plan.)Instead of using
percentages, the basic concept is that plans should be as brief and simple as possible
provided that they adequately direct the team to what needs to be done each day to
support the project.

Question 19:Why do you suppose that the coordination of the various elements of
the project is considered the most difficult aspect of project implementation?
In the military, there is a saying that, “No plan survives its first encounter with the
enemy.” Therefore, even the best of plans should be adjusted to the reality of the project
as it unfolds. This juggling of activities and resources across groups is a real-time activity
that is usually done without a lot of detailed information or analysis. The coordination is

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made more difficult by the inevitable problems in communication that occur in even the
best-run projects.

Question 20:What kinds of risk categories might be included in the project

charter?
The areas of risk need to be relevant to the project. Unfortunately, we can think of many
things that are “risky” in our lives, but they aren’t necessarily relevant to a particular
project. The PMBOK® Guide Fifth Edition describes typical categories to consider risk in
as:
 Technical
 External
 Organizational
 Project Management

Question 21:In what ways may the WBS be used as a key document to monitor
and control a project?
The WBS is probably one of the most useful project planning tools. It identifies the work
required to provide the project’s deliverables. It provides a framework for identifying
direct costs and resource requirements. Rolling up individual budgets through the
structure of the WBS can capture the total budget. The project schedule can be
displayed as a Gantt chart where each line is mapped directly to the WBS. Actual data
can be captured in project management software using the WBS table to enter actual
cost and schedule performance data.

Question 22:Describe the process of subdivision of activities and events that

composes the tree diagram known as the Work Breakdown Structure or Gozinto
chart. Why is the input of responsible managers and workers so important an
aspect of this process?
Subdividing activities for a WBS involves a layer by layer breakdown of activities. PMs
should first divide the project into the main-level set of activities and then break each of
those levels down even further. This should continue until each activity is broken down
into its smallest activity. It is important to get as much input as possible from
stakeholders because getting the WBS built as well as possible can result in significant
dividends as the project progresses due to numerous other deliverables that evolve from
it.
The input of the managers and workers is important because they are the ones that
actually perform the work. It is recommended that they contribute in this area because
they have valid, relevant input and their buy-in can be increased when their input is
taken.

Question 23:Why is project planning so important?

Usually, the plan frames the project in a manner that helps the team prepare for the
challenges that lay ahead. It is not so important that the team create the perfect project
plan. However, it is important that the plan raises the level of understanding about what

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must be done to achieve a successful implementation that solves real needs. The plan
should also provide a reference point that the team can use to make course adjustments
as work progresses. Ultimately the plan must provide sufficient guidance so that every
member of the team knows what they should be doing each day to contribute to the
success of the project.
Something to think about: Have you ever taken a vacation without first deciding on a
destination?

Question 24:What are the pros and cons concerning the early participation of the
various functional areas in the project plan?
Refer to Section 6.1 in the text.
Pros: Involving functional areas in proposal development may help an organization to
avoid promising deliverables and/or performance that cannot be delivered to the
customer. This involvement is important in winning support for the project from the
people who are likely to loan the resources. In many cases, those resources would like
to provide input about what will be done, how it will be done, how it will be priced, and
when it will be accomplished.
Cons: It is conceivable that some otherwise qualified managers and technical specialists
will not possess strong relationship management skills and/or a willingness to participate
in interdisciplinary approaches to solving problems. Such people could sabotage
negotiations in subtle ways by objecting to parameters or by using blocking techniques
that create fear, uncertainty or doubt about a project’s success. It is also difficult to
identify credibly the proper economic trade-off between early involvement and delayed
participation of functional specialists.

Question 25:Task 5-C is the critical, pacing task of a rush project. Fred always
nitpicks anything that comes his way, slowing it down, driving up its costs, and
irritating everyone concerned. Normally, Fred would be listed as “Notify” for task
5-C on the responsibility matrix, but the PM is considering “forgetting” to make
that notation on the chart. Is this unethical, political, or just smart management?
In general, this would be an unethical thing to do. The PM should demonstrate a little
more maturity by confronting the problem head-on rather than trying to cover it up with
tricks. An important consideration is Fred’s contribution to the project. If he is notified
because, in spite of his difficult attitude, he has something to contribute, then the PM is
not only unethical, he is stupid to bypass him. If he is difficult and does not add value (a
dynamite combination!), then the PM should bypass him and have the courage to look
Fred in the eye and tell him why he was ignored for that particular task. A manager,
whom I respect, once told me when I was faced with a difficult team member, “You have
got to talk to him. Maybe nobody ever told him that he was a jerk.”

Question 26:How might we plan for risks that we cannot identify in the risk
management section of the project charter?
The simplest way to plan for an unknown risk is to add a buffer. This can be both for the
schedule and the budget. This buffer should be visible to all concerned; not hidden as

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padding in individual activities. Eli Goldratt recommends establishing a project time

buffer that is adjusted as the project unfolds (this is discussed at length in Chapter 9).
The team knows that the buffer has gotten smaller if they are running behind, and larger
if they are ahead. Similarly it is a common practice on large defense projects to establish
a “Management Reserve.” This is a portion of the total project budget that is deliberately
held in reserve against unknown scope variation. Another technique is the designation of
selected experts to handle the problems as they arise. This can be coupled with a well-
defined escalation process, in which the designated people at appropriate levels in the
organization are notified based on the nature and severity of the problem.

Question 27:Might milestones and phase-gates both occur at the same point of a
project? Will the same activities be happening?
Milestones and phase-gates may occur at the same time in some instances because
phase-gates can be considered milestones. In other cases they can occur at different
times because milestones can be used to see if the project is “on track” while phase-
gates can be utilized to determine if the project should continue to the next phase.

Question 28:Why was agile project management developed? Do you think this
might be the way of the future for project management?
Agile project management was developed because of an increasing number of projects,
in which the scope of the project was not sufficiently determined in advance and thus,
the scope is progressively determined as the project progresses. I do believe that this
approach will continue to be increasingly utilized in future projects due to the continuing
number of projects where project scope cannot be accurately determined up-front.

Question 29:Compare the advantages of risk matrices vs. FEMA tables for project
management use.
Risk matrices and FMEA tables are extremely useful in analyzing the impacts of threats.
Each one helps in identifying the threats that cause the most concern. In addition, they
can be used to analyze the portfolio of projects in relation to their risk structure.

Question 30:Contrast decision trees and probability trees. How might each be
used by project managers? Which would be the more valuable?
Decision and probability trees are similar. If we are only interested in probabilities, we
call the tree a probability tree. But if there are some actions we are considering
anywhere along the tree—before the first probability event, say, or between events—and
we want to evaluate which action(s) would be the best, then it is called a decision tree.
Each can be used by PMs to help determine the likelihood of certain events occurring.
The decision tree is generally more valuable because it has a broader value.
can be used to analyze the portfolio of projects in relation to their risk structure.

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Question 31:Could a cause-effect chart be used for two different risks at the same
time? Would the end “problem” be the result of one risk or both concurrently?
A cause-effect chart could be used for two risks concurrently. The end “problem” would
be the result of both occurring concurrently.

Question 32:Are the risk responses for threats or opportunities more important for
project managers? Why?
Risk responses to threats and opportunities are more important for a particular PM
depending on their level of risk tolerance. For those who are risk-averse, they might be
inclined to think the risk responses for threats are more important and vice versa for
those PMs who are risk-seeking.

Question 33:What are the advantages of using mind mapping to facilitate project
planning?
Mind mapping has the following advantages in project planning:
 it is a visual approach that closely mirrors how the human brain records and stores
information
 it helps tap the creative potential of the entire project team, which, in turn, helps
increase both the quantity and quality of ideas generated
 team members tend to find mind mapping enjoyable
 it also helps generate enthusiasm
 it helps obtain buy-in from team members
 it gets quieter team members more involved in the planning process

PROBLEMS

Problem 1:Top administrators in a university hospital have approved a project to

improve the efficiency of the pharmaceutical services department by the end of
the fiscal year to satisfy new state regulations for the coming year. However, they
are concerned about four potential threats: (1) The cost to implement the changes
may be excessive, (2) The pharmacists may resist the changes, (3) The project
may run much longer than expected and not be ready for the coming fiscal year,
(4) The changes might reduce the quality of drug care in the hospital. The
likelihood and negative impact of each threat have been solicited from the
managers by a three-round Delphi process and are as follows, based on a seven-
point scale where seven is the most likely and most negative impact:
Construct a risk matrix and identify what you would consider to be the “critical,”
“monitor,” and “ignore” threats. Explain your reasoning. Recommend and justify
a risk response for each threat.

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Problem 1:Problem 1:Probability 6

Threat 2
5
Threat 1
4
Threat 4
3
Threat 3
2

1 2 3 4 5 6 7
Impact
Legend:
Critical
Monitor
Ignore

Threat 1: The threat of costs being excessive could occur. Actually, the probability is
somewhat high. This can be transferred to an outsourcing provider to help reduce this
threat.
Threat 2: The likelihood of the users resisting changes could cause major problems. This
is somewhat likely to happen, but can be avoided if they are given an alternative and
consulted in advance.
Threat 3: The project may run longer than expected. This isn’t highly likely, but this can
be transferred by outsourcing the project.
Threat 4: The changes may reduce the quality of care in the hospital. The probability is
satisfactory because the improvements brought about by the new system may not be
significant. If the quality decreases, the impact could be fairly significant, thus the
hospital may need to mitigate this threat by including more users in the planning.

Problem 2:The project manager for the project in Problem 1 has estimated the
probabilities of not detecting the risks in time to react to them as follows, again on
a seven-point scale: Threat 1: 4, Threat 2: 1, Threat 3: 3, Threat 4: 6. Construct a
FMEA table to determine which risks are now the “critical,” “monitor,” and
“ignore” threats. How have they changed from Problem 1? Why? Does this new
ranking seem more realistic?

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Threat Severity Likelihood Inability to detect RPN

#1 3 5 4 60
#2 5 6 1 30
#3 4 3 3 36
#4 7 4 6 168
The main thing that changes when using this approach is that threat #2 drops
significantly from “critical” to possibly “ignore.” This is mostly due to the lack of inability to
detect. Threat #2 is somewhat severe and the likelihood is great, but since the threat is
relatively easy to detect, it can be mitigated early and possibly even removed. Thus, this
is a much more realistic evaluation of the threats than just creating a risk matrix.

Problem3:You might not have realized it, but getting a college degree is a project.
Assume you are in a degree program in college and are concerned about getting
your degree. Create a fishbone (cause–effect) diagram, with “failure to get degree”
as the problem outcome. Identify at least four possible threat risks for this
problem to occur. Then for each threat list at least three reasons/factors for how
that threat could conceivably come to pass. Finally, review your diagram to
estimate probabilities and impacts of each threat to getting your degree. Based on
this analysis, what threats and factors should you direct your attention to, as the
project manager of your project to get your degree.

Problem 4:The yearly demand for a seasonal, profitable item follows the
distribution below:
A manufacturer is considering launching a project to produce this item and could
produce it by one of three methods:
a. Use existing tools at a cost of $6 per unit.
b. Buy cheap, special equipment for $1,000. The value of the equipment at the
end of the year (salvage value) is zero. The cost would be reduced to $3 per unit.
c. Buy high-quality, special equipment for $10,000 that can be depreciated
over four years (one fourth of the cost each year). The cost with this equipment
would be only $2 per unit.

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Set up this project as a decision tree to find whether the manufacturer should
approve this project, and if so, which method of production to use to maximize
profit. Hint: Compare total annual costs. Assume production must meet all
demand; each unit demanded and sold means more profit.

p = .20 $1,200

p = .30 $3,600
p = .40
$7,200
p = .10
$2,400
$14,400

Existing tools

$800
p = .20

p = .30 $2,100
Cheap equipment
p = .40 $4,000
p = .10
$1,300
$8,200

High-quality equipment

$900
p = .20
$1,950
p = .30
p = .40 $3,400
p = .10
$1,050
$7,300

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Based on the analysis, the manufacturer should approve the purchase of the high-
quality, special equipment for $10,000. As a result, significant savings should occur.

Problem 5:Given the decision tree below for a two-stage (decision) project to enter
a joint venture, find the best alternatives (among a1-a6 in the figure) and their
expected values. The outcomes shown are revenues and the investment expenses
are in parentheses. Node 4 represents the situation where alternative a1 was
chosen, and then the top outcome with a 70% probability occurred; note that there
is no choice of alternative if the 30% probability outcome occurred. Similarly with
Node 5.
a1, a3 decision = (0.7$3,000)+ (0.3$2,000) – $500 =$2,200
a1, a4 decision = (0.7$1,000)+ (0.3 $2,000) – $500 =$800
a2, a5 decision = (0.4$2,150)+ (0.6$3,000) – $1,000=$1,660
a2, a6 decision = (0.4$2,150) + (0.6$4,000) – $1,000=$2,260
Based on this analysis, the best option is a2, a6.

Problem 6:Medidata Inc. has identified three risk opportunities for their new
medical database project. One is an opportunity to extend the database to
include doctors as well as hospitals. This has a probability of a 3 and an
impact on their profitability of a 3 on a 1–5 scale, where higher numbers are
greater values of probability and profitability. Another is the opportunity to
extend the database to other countries, particularly in Europe. For this, the
probability is ranked only a 2 but the profitability impact is considered to
be 4 due to the higher social interest by European governments. Last, they
might be able to interest nonusers such as pharmaceutical firms in using,
or perhaps buying, their data. Here the probability is more certain, a 4, but
the profitability would be only a 2. Construct an opportunity risk matrix,
identify the “critical,” “monitor,” and “ignore” opportunities, and
recommend risk responses for each opportunity.
P 5
r
o 4
3
b
a 3
1
b
i 2
2
l
i 1
t
y 1 2 3 4 5
Impact

Legend:
Critical

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Monitor
Ignore
Opportunity 1:
You could “accept” this risk and enjoy the benefits derived from it. To increase the
potential for more impact, you could enhance the risk by providing more training.
Opportunity 2:
You could “accept” this risk and enjoy the benefits derived from it. To increase the
potential for more impact, you could further exploit the database.
Opportunity 3:
You could “accept” this risk and enjoy the benefits derived from it. To increase the
potential for more impact, you could share the data by increasing sales.

Problem 7: In addition to your regular responsibilities, your supervisor has just

assigned you to be in charge of your organization’s annual golf tournament. It is
expected that 100 to 150 employees will enter the tournament. In addition to
organizing the event, you are also responsible for promoting it. Your budget for
the event is $25,000. Develop a mind map to identify the tasks that need to be
completed for the golf tournament project.
The mind maps can vary considerably based on the students, but could look something
like this:
Check dates with
our company

Announcement
made in weekly
meetings
Research golf
courses

Email to employees Advertise Organize golf Reservations

Select date
tournament

Flyers in the mail Select golf course

Trophies/prizes

Purchases

Refreshments

INCIDENTS FOR DISCUSSION

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Ringold’s Pool and Patio Supply

Questions: Is John Jr.’s WBS projection reasonable? What aspects of the
decision will John Sr. consider?
This is a good opportunity to engage the class in a discussion of the importance of
involving the team in developing plans and schedules. One way to do this is to engage
the class in collectively creating the upper level or two of a WBS for the project. Chances
are they will come up with several items that Junior missed in his, demonstrating the
danger of working alone.
John Sr. is asking a reasonable question, but his son is giving him a defective answer.
Even though Junior’s WBS looks very precise, it would be dangerous to base any
decision on it. Since, it has not been validated by anyone who has actual experience in
installing pools, there is no way of knowing if the estimates are reasonable, or even if it
has accounted for all the work. Junior has made no effort to evaluate the requirements of
the job. For example, he doesn’t list in his WBS anything related to permitting, electrical
or plumbing. In addition to these concerns, John Sr. must consider several business
issues including whether his company has the staff, skills, and equipment to take on this
new area. He needs to consider whether this expansion matches his long-term goals for
the business.

Stacee Laboratories
Questions: Do you think Millie Tasha is right? If so, how should new drug projects
be planned and organized? If Stacee Pharmaceutical goes ahead with a
reorganization of lab projects, what are the potential problems? How would you
deal with them? Could scope creep become more of a problem with the new
integrated teams? If so, how should it be controlled?
With adult professional students, this incident can lead to a lively discussion of the
involvement of other areas in a highly technical project. There will no doubt be many
opinions both pro and con on the involvement of areas, like marketing in a project that is
primarily a technical one. The students will probably have stories that will illustrate that,
in the long run, the involvement of other areas will make a project team stronger.
Ms. Tasha is only partially right. She is mixing together two different issues in her
recommendations. One way to understand the issues involved would be to map the
interfaces that would exist in this new environment. I suspect that mapping would show
that her concerns about the involvement of the toxicity and efficacy group are well taken.
They need to participate in the project from early on to understand the nature of the drug
being developed and to also allow them to pre-plan their part of the project. Advice from
this group could be valuable in reducing the number of dead ends that the research
group pursues. On the other hand, it could be a mistake to involve the marketing
department early on in each project. While they could get a head start on analyzing
potential markets, there is nothing to market until the end, and they cannot contribute to
the identification of new drugs. Ms. Tasha has missed an opportunity, however, to
recommend a better portfolio management process. Big Pharma does this quite well, as
they have far more leads for new drugs than the resources to pursue them. In a portfolio

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management process, marketing’s involvement would be essential as they contribute to

the decision of what areas to pursue new drugs in. Once the project has been launched,
however, they should limit their involvement till the end.
Scope creep is probably more of a danger, if the researchers are working by themselves
and others just participate. A good way to help prevent it is to insure that there is an
adequate definition of the requirements at the beginning, and strong project planning
and control during the process. Students will typically object to this notion because their
instinct is that a research project cannot be closely controlled. This is an opportunity to
point out that the process can and should be controlled, even if the outcomes cannot.

CASE: Caprico

Question 1:Which of the project planning aids described in thechapter was used
in the case study? How were they differentfrom the versions described in this
chapter?
The following elements were used in the Caprico AGP development project:
 Project Plan – This was developed by consensus in the group meeting and
included a menu of plan components to be used as appropriate for each project
within each group
 Action Plans – These were the detailed plan elements looking at the time, cost
and resource commitments to complete the planned tasks. Once again they
were developed following the principles established in the group meetings.
 Work Breakdown Structure – Developed as an indented WBS with activities
numbered for easy reference. Costs and resource requirements were then
developed for the WBS elements.
 Project Master Schedule – This was developed using a bottom up method by first
creating the detailed network. After the schedule was derived, a master
schedule and milestones could be developed.
 Linear Responsibility Chart – This was described as the “accountability matrix”
and was derived from the WBS.
 Control System – This element describes the way that the project will be
monitored. The process relied on updating Gantt charts to show progress.

Question 2:Compare this project with the Project Portfolio Processand Hewlett-
Packard’s project management process inthe reading for Chapter 2.
This project and the Project Portfolio Process described in Chapter 2 are two different
elements of the overall project management process. The Portfolio Process in Chapter
2 is a method for selecting which project should be carried out.
The project described in the Caprico case assumes that the project has already been
selected from a number of candidates. It justifies the project in terms of the appropriate
criteria, which will include financial and non-financial aspects. But is also describes the
implementation of a consistent methodology for the planning, scheduling and execution
of each capital project across the firm.

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Question 3: What was the purpose of the AGP project? Was it successful?
The purpose of the AGP project was to establish a consistent method for the planning,
scheduling and execution of engineering projects in Caprico. It was intended to
overcome the apparent failings of the mixture of methods and processes used before,
which had certainly led to project outcomes that were harming the competitiveness of
the company. The emphasis was on the planning process to improve the outcome of
capital projects.
Early indications were that the new approach was successful, although the market
impact would take time to become apparent. The case suggests that the process of
deeply involving engineering managers in the design of the AGP helped to ensure its
use and acceptance.

Question 4:Why are the WBS and Linear Responsibility Chart differentin design to
the ones in the chapter?
There is no absolute standard to the design of these and other project tools. That is
correct, because the exact nature of the organization and the project mean that the
precise design needs to be adapted for each case. Over time organisations establish
their own standards.
In the case of Caprico, the involvement of the engineering managers in the AGP
development probably meant that they collectively agreed on the precise design of the
project tools they would use in the future.

Question 5:What was wrong with the previous focus on cost-benefit?Does the
AGP system still include a cost-benefitanalysis?
The previous focus on cost-benefit only addressed one aspect of the project
management process and only in a limited way. The corporation used a cost-benefit
analysis technique to select the capital projects to execute. It found, however, that even
though they may have selected the best project, they did not achieve their goals
because the execution of the project was poor.
The case does not say that cost-benefit analysis is no longer used for project selection;
instead it focuses on the work required after the project is selected. The new process
ensures that costs are collected during project execution so that they can be compared
to the anticipated costs and the performance benefits of the project being delivered.

Question 6:Why did changing depreciation legislation increase theimportance of

using capital funds in the most efficientway?
Changes in the way depreciation is calculated would change the cost-benefit for the
installation of capital equipment. Without knowing the exact changes in the law, it is
reasonable to assume that the changes were not favourable to Caprico, making the
equipment relatively more expensive over its life. Perhaps the cost of the equipment
would have to be written off more slowly, meaning that it would stay on the balance
sheet for longer, diluting return on investment.

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This situation would make it more important to ensure that capital was invested wisely.
In other words investments that cost too much would hurt the company’s profits for years
to come. Using the AGP should increase the chance of success for each capital project
by making best use of the company’s assets.

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