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Book extracts
Book title Project management: achieving competitive advantage.

Book author Pinto, Jeffrey K.

Citation details pages 47-49, 83, 85-86, 120, 182-184, 187-190, 225, 227-
228, 253-258, 288, 360-361, 455, 490-491, 500-501.

Extract title Extracts from Project management: achieving competitive

advantage.

Extract author Pinto, Jeffrey K.

Publication details Harlow, Essex : Pearson Education, ©2013.

Edition Third edition, global edition.

Reproduced with permission Textbook, 3013 edition, Out of print, 4th Edition to be
published.

ISBN 9780273767428 Total pages in book 528 pages :

 Case Study 1.1 47

Key Terms
Benchmarking (p. 38) Deliverables (p. 25) Project life cycle (p. 32) Project success (p. 35)
Client acceptance (p. 36) Performance (p . 35) Project management (p. 28) Stakeholders (p. 32)
Clients (p. 33) Process (p. 25) Project management Time (p. 35)
Budget (p. 35) Project (p. 25) maturity models (p. 38) Triple constraint (p. 35)

Discussion Questions
1. What are some of the principal reasons why project manage- particularly impressive? How can a firm like Disney balance
ment has become such a popular business tool in recent years? the need for efficiency and smooth development of proj-
2. What do you see as being the primary challenges to introduc- ects with the desire to be innovative and creative? Based on
ing a project management philosophy in most organizations? this case, what principles appear to guide its development
That is, why is it difficult to shift to a project-based approach in process?
many companies? 8. Consider the six criteria for successful IT projects. Why is IT
3. What are the advantages and disadvantages of using project project success often so difficult to assess? Make a case for some
management? factors being more important than others.
4. What key characteristics do all projects possess? 9. As organizations seek to become better at managing projects,
5. Describe the basic elements of a project life cycle. Why is an they often engage in benchmarking with other companies in
understanding of the life cycle relevant for our understanding similar industries. Discuss the concept of benchmarking. What
of projects? are its goals? How does benchmarking work?
6. Think of a successful project and an unsuccessful project with 10. Explain the concept of a project management maturity model.
which you are familiar. What distinguishes the two, both in What purpose does it serve?
terms of the process used to develop them and their outcomes? 11. Compare and contrast the four project management maturity
7. Consider the Expedition Everest case: What elements in models shown in Table 1.3. What strengths and weaknesses do
Disney's approach to developing its theme rides do you find you perceive in each of the models?

Case Study 1.1

MegaTech, Inc.
MegaTech, Inc., designs and manufactures automotive instance, that product updates had to be much more fre-
components. For years, the company enjoyed a stable quent. Achieving this goal meant yearly redesigns and
marketplace, a small but loyal group of customers, and new technologies, which, in turn, meant making innova-
a relatively predictable environment. Though slowly, tive changes in the firm's operations. In order to make
annual sales continued to grow until recently hitting $300 these adjustments, special project teams were formed
million. MegaTech products were popular because they around each of the company's product lines and given a
required little major updating or yearly redesign. The mandate to maintain market competitiveness.
stability of its market, coupled with the consistency of its At the same time, however, MegaTech wanted to
product, allowed MegaTech to forecast annual demand maintain its internal operating efficiencies. Thus all proj-
accurately, to rely on production runs with long lead ect teams were given strict cost and schedule guidelines
times, and to concentrate on internal efficiency. for new product introductions. Finally, the company
Then, with the advent of the North American Free created a sophisticated research and development team,
Trade Agreement (NAFT A) and other international trade which is responsible for locating likely new avenues for
agreements, MegaTech found itself competing with auto technological change 5 to 10 years down the road. Today,
parts suppliers headquartered in countries around the MegaTech operates project teams not only for managing
world. The company was thrust into an unfamiliar position: current product lines but also for seeking longer-term
It had to become customer-focused and quicker to market payoffs through applied research.
with innovative products. Facing these tremendous com- MegaTech has found the move to project manage-
mercial challenges, top management at MegaTech decided ment challenging. For one thing, employees are still rethink-
to recreate the company as a project-based organization. ing the ways in which they allocate their time and resources.
The transition, though not smooth, has nonethe- In addition, the firm's success rate with new projects is still less
less paid big dividends. Top managers determined, for than management had hoped. Nevertheless, top managers
(continued)
48 Chapter 1 • Introduction

feel that, on balance, the shift to project management has Questions

given the company the operating advantage that it needed
1. What is it about project management that offers
to maintain its lead over rivals in its globally competitive
Mega Tech a competitive advantage in its industry?
industry. "Project management," admits one MegaTech
2. What elements of the marketplace in which Mega Tech
executive, "is certainly not a magic pill for success, but it has
operates led the firm to believe that project manage-
started us thinking about how we operate. As a result, we are
ment would improve its operations?
doing smarter things in a faster way around here."

Case Study 1.2

Continuing Education Center at TOBB University of Economics and Technology
TOBB University of Economics and Technology (TOBB members. Also, each semester two or three TOBB ETU
ETU), the largest private sector institution in Turkey, students join the Continuing Education Center as interns
was founded by the Union of Chambers and Commodity through the university's cooperative education program.
Exchanges of Turkey (TOBB) for educating entrepre- Interns mainly help administrative staff; however, after they
neurial and qualified community leaders. In conjunc- become familiar with ETU CEC activities, they are allowed
tion with TOBB ETU's mission of maintaining university to participate in projects. The project manager oversees
and industry cooperation, and enhancing productivity multiple projects with full responsibility, and team members
through helping the workforce to acquire the relevant are assigned to several projects at the same time.
skill sets, the Continuing Education Center at TOBB Dr. Ramazan Akta~, a finance professor at TOBB
ETU (ETU CEC) offers project management and consult- ETU and the manager of ETU CEC, says that the proj-
ing services. They also offer a wide range of educational ect teams at ETU CEC achieve their missions with small
programs to individuals and to organizations of all sizes, teams because of their strict adherence to solid project
especially small and medium enterprises (SMEs), which management practices. He also states that ETU CEC
constitute the backbone of the Turkish economy. places a great emphasis on customer satisfaction. By
At the Continuing Education Center, courses are means of its project management system, ETU CEC has
taught by TOBB ETU instructors as well as by industry obtained an advantage over its competitors, formed long-
professionals. Some of highly demanded courses include term partnerships with other organizations, promoted
Project Management, Human Resources Development collaboration, acquired new projects, achieved high
and Management, Performance Evaluation, Foreign Trade, customer satisfaction, and therefore sustained continuous
Training the Trainer, and Access to EU Funding. The increases in its customer base and profits.34
Continuing Education Center also utilizes the academic staff
of TOBB ETU in its projects and for consulting services.
Questions
Since 2006, ETU CEC has reached 13,000 people with
280 professional events including workshops, certificate 1. What are the benefits and drawbacks of allowing
courses, and customized training programs for various interns participate in ETU CEC projects?
organizations, and has provided consulting and project 2. What are the potential problems with requiring proj-
management services to 40 institutions. ect team members to be involved in multiple projects
The administrative board of ETU CEC includes at the same time? What are the potential advantages?
three professors, and the center employs a project man- 3. What benefits has ETU CEC obtained from its project
ager, a business analyst, and two administrative staff management system?

Case Study 1.3

Disney's Expedition Everest
The newest thrill ride to open in the Walt Disney World park attraction that would, in many ways, serve as the link
Resort may just be the most impressive. As Disney between Disney's amazing past and its promising future .
approached its SOth anniversary, the company wanted to Disney showed that it was ready to pull out all stops in
celebrate in a truly special way. What was its idea? Create a order to get everything just right.
 Case Study 1.3 49

In 2006, The Walt Disney Company introduced guests' adventure starts by entering the building of the
Expedition Everest in Disney's Animal Kingdom Park "Himalayan Escape" tour company, complete with Norbu
at Lake Buena Vista, Florida. Expedition Everest is more and Bob's booking office to obtain permits for their trip.
than just a roller coaster. It is the embodiment of the Overhead flutter authentic prayer flags from monasteries
Disney spirit: a ride that combines Disney's trademark in Nepal. Next, guests pass through Tashi's General Store
thrills, unexpected twists and turns, incredible attention and Bar to stock up on supplies for their journey to the
to detail, and impressive project management skills. peak of the mountain. Finally, guests pass through an old
First, let's consider some of the technical details of tea warehouse that contains a remarkable museum of arti-
Expedition Everest: facts reflecting Nepal's culture, a history of the Himalayas,
and tales of the Yeti, which is said to inhabit the slopes of
• With a peak of just under 200 feet, the ride is con-
Mount Everest. It is only now that guests are permitted
tained within the tallest of 18 mountains created by
to board the Anandapur Rail Service for their trip to the
Disney's Imagineers at Disney parks worldwide.
peak. Each train is modeled after an aging, steam-engine
• The ride contains nearly a mile of track, with twists,
train, seating 34 guests per train.
tight turns, and sudden drops.
Over the next several minutes, guests are trans-
• The Disney team created a Yeti: an enormous, fur-
ported up the roller coaster track, through a series of
covered, Audio-Animatronics monster powered
winding turns, until their encounter with the Yeti. At this
by a set of hydraulic cylinders whose combined
point another unique feature of the attraction emerges:
thrust equals that of a Boeing 747 airliner. Through
The train begins rushing backward down the track, as
a series of sketches, computer-animated draw-
though it were out of control. Through the balance of the
ings, sculptures, and tests that took more than two
ride, guests experience a landscape of sights and sounds
years to perfect, Disney created and programmed its
culminating in a 50 mph final dash down the mountain
Abominable Snowman to stand over 10 feet tall and
and back to the safety of the Nepalese village.
serve as the focal point of the ride.
Disney's approach to the management of projects
• More than 900 bamboo plants, 10 species of trees,
such as Expedition Everest is to combine careful planning,
and 110 species of shrubs were planted to re-create
including schedule and budget preparation, with the imagi-
the feeling of the Himalayan lowlands surrounding
nation and vision for which the company is so well known.
Mount Everest.
Creativity is a critical element in the development of new
• More than 1,800 tons of steel were used to construct
projects at Disney. The company's Imagineers include
the mountain. The covering of the framework was
some of the most skilled artists and computer-animation
done using more than 3,000 prefabricated "chips"
experts in the world. Although it is easy to be impressed by
created from 25 ,000 individual computer-molded
the technical knowledge of Disney's personnel, it is impor-
pieces of steel.
tant to remember that each new project is approached with
• To create the proper color schemes, 2,000 gal-
an understanding of the company's underlying business
lons of stain and paint were used on rockwork and
and attention to market projections, cost control, and care-
throughout the village Disney designed to serve as a
ful project management discipline. New attraction pro-
backdrop for the ride.
posals are carefully screened and researched. The result is
• More than 2,000 handcrafted items from Asia are used
the creation of some of the most innovative and enjoyable
as props, cabinetry, and architectural ornamentation.
rides in the world. Disney does not add new attractions to
Building an attraction does not come easily or quickly its theme parks frequently, but when it does so, it does so
for Disney's Imagineers. Expedition Everest was several with style!
years in development as Disney sent teams, including
Walt Disney Imagineering's Creative Executive Joe Rohde,
Questions
on repeated trips to the Himalayas in Nepal to study the
lands, architecture, colors, ecology, and culture in order 1. Suppose you were a project manager for Disney.
to create the most authentic setting for the new attraction. Based on the information in this case, what critical
Disney's efforts reflect a desire to do much more than pro- success metrics do you think the company uses when
vide a world-class ride experience; they demonstrate the designing a new ride; that is, how would you priori-
Imagineers' eagerness to tell a story-a story that combines tize the needs for addressing project cost, schedule,
the mythology of the Yeti figure with the unique history quality, and client acceptance? What evidence sup-
of the Nepalese living in the shadow of the world's tallest ports your answer?
mountain. Ultimately, the attraction, with all its background 2. Why is Disney's attention to detail in its rides unique?
and thematic elements, took nearly five years to complete. How does the company use the "atmosphere" discussed
Riders on Expedition Everest gain a real feel for the in the case to maxin1ize the experience while minimiz-
atmosphere that Disney has worked so hard to create. The ing complaints about length of wait for the ride?
 Case Study 2.1 83

Discussion Questions
1. The chapter suggests that a definition of strategic management to a functional organization that was seeking to move from an
includes four components: old, adversarial culture, where the various departments actively
a. Developing a strategic vision and sense of mission resisted helping one another, to one that encourages "project
b. Formulating, implementing, and evaluating thinking" and cross-functional cooperation?
c. Making cross-functional decisions 6. You are a member of the senior management staff at XYZ
d. Achieving objectives Corporation. You have historically been using a functional
Discuss how each of these four elements is important in under- structure setup with five departments: finance, human resources,
standing the challenge of strategic project management. How marketing, production, and engineering.
do projects serve to allow an organization to realize each of a. Create a drawing of your simplified functional structure,
these four components of strategic management? identifying the five departments.
2. Discuss the difference between organizational objectives and b. Assume you have decided to move to a project structure.
strategies. What might be some of the environmental pressures that
3. Your company is planning to construct a nuclear power plant in would contribute to your belief that it is necessary to alter
Oregon. Why is stakeholder analysis important as a precondi- the structure?
tion of the decision whether or not to follow through with such c. With the project structure, you have four ongoing projects:
a plan? Conduct a stakeholder analysis for a planned upgrade to stereo equipment, instrumentation and testing equipment,
a successful software product. Who are the key stakeholders? optical scanners, and defense communications. Draw the
4. Consider a medium-sized company that has decided to begin new structure that creates these four projects as part of the
using project management in a wide variety of its operations. As organizational chart.
part of its operational shift, it is going to adopt a project man- 7. Suppose you now want to convert the structure from that in
agement office somewhere within the organization. Make an Question 6 to a matrix structure, emphasizing dual commit-
argument for the type of PMO it should be adopting (weather ments to function and project.
station, control tower, or resource pool). What are some key a. Re-create the structural design to show how the matrix
decision criteria that will help it determine which model makes would look.
the most sense? b. What behavioral problems could you begin to anticipate
5. What are some of the key organizational elements that can through this design? That is, do you see any potential
affect the development and maintenance of a supportive orga- points of friction in the dual hierarchy setup?
nizational culture? As a consultant, what advice would you give

Case Study 2.1

Rolls-Royce Corporation
Although the name Rolls-Royce is inextricably linked with companies, has drawn level with Boeing in sales in recent
its ultra-luxurious automobiles, the modern Rolls-Royce years. Because the cost of a single jet engine, including
operates in an entirely different competitive environment. spare parts, can run to several million dollars, winning
A leading manufacturer of power systems for aerospace, large orders from either defense or commercial aircraft
marine, and power companies, Rolls's market is focused builders represents an ongoing challenge for each of the
on developing jet engines for a variety of uses, both com- "big three" jet engine manufacturers.
mercial and defense-related. In this market, the company Airlines in developing countries can often be a lucra-
has two principal competitors, General Electric and Pratt tive but risky market for these firms. Because the coun-
& Whitney (owned by United Technologies). There are a tries do not maintain high levels of foreign exchange, it is
limited number of smaller, niche players in the jet engine not unknown, for example, for Rolls (or its competitors)
market, but their impact from a technical and commer- to take partial payment in cash with assorted commodi-
cial perspective is minor. Rolls, GE, and Pratt & Whitney ties to pay the balance. Hence, a contract with Turkey's
routinely engage in fierce competition for sales to defense national airline may lead to some monetary payment for
contractors and the commercial aviation industry. The Rolls, along with several tons of pistachios or other trade
two main airframe manufacturers, Boeing and Airbus, goods! To maintain their sales and service targets, these
make continual multimillion-dollar purchase decisions jet engine makers routinely resort to creative financ-
that are vital for the ongoing success of the engine makers. ing, long-term contracts, or asset-based trading deals.
Airbus, a private consortium of several European partner Overall, however, the market for jet engines is projected
(continued)
 Case Study 2.4 85

Alto a one-of-a-kind technology, and the company quietly and operating capabilities that he asked when it was due
shelved any plans for its commercial introduction. to be commercially launched. When told that much of
Perhaps the ultimate irony is this: Here was a com- this technology had been developed in 1973, Jobs became
pany that had made its name through the phenomenal "physically sick," he later recounted, at the thought of the
success of a highly innovative product, the Model 914 opportunity Xerox had forgone.
photocopier, but it did not know how to handle the
Questions
opportunities presented by the next phenomenon. The
Alto was so advanced that the company seemed unable 1. Do you see a logical contradiction in Xerox's will-
to comprehend its possibilities. Executives did not have a ingness to devote millions of dollars to support pure
strategic focus that emphasized a continual progression of research sites like PARC and its refusal to commer-
innovation. Instead, they were directed toward remaining cially introduce the products developed?
neck-and-neck with the competition in an incremental 2. How did Xerox's strategic vision work in favor of or
approach. When competitor IBM released a new electric against the development of radical new technologies
typewriter, Xerox responded in the same incremental such as the Alto?
way. The organizational structure at Xerox did not allow 3. What other unforeseeable events contributed to mak-
any one division or key manager to become the champion ing Xerox's executives unwilling to take any new risks
for new technologies like the Alto. precisely at the time the Alto was ready to be released?
In 1979 Steven Jobs, president of Apple Computer, 4. "Radical innovation cannot be too radical if we want
was given a tour of the PARC complex and saw an Alto it to be commercially successful." Argue either in
in use. He was so impressed with the machine's features favor of or against this statement.

Case Study 2.3

Project Task Estimation and the Culture of "Gotcha!"
I recently worked with an organization that adopted a Boss "That's too long. I can only give you 80
mind-set in which it was assumed that the best way to keep hours, tops."
project team members working hard was to unilaterally You (THEATRICAL SIGH) "Well, if you say SO, but
trim their task duration estimates by 20%. Suppose that I really don't know how
you were asked to estimate the length of time necessary I can pull this off."
to write computer code for a particular software product
and you determined that it should take about 80 hours. Once you leave the office and shut the door, you
Knowing you were about to present this information to turn with a smile and whisper, "Gotcha!"
your supervisor and that she was going to immediately cut
the estimate by 20%, what would be your course of action? Questions
You would probably first add a "fudge factor" to the esti-
mate in order to protect yourself. The conversation with 1. How does the organization's culture support this sort
the boss might go something like this: of behavior? What pressures does the manager face?
What pressures does the subordinate face?
Boss "Have you had a chance to estimate that 2. Discuss the statement, "If you don't take my estimates
coding sequence yet?" seriously, I'm not going to give you serious estimates!"
You "Yes, it should take me 100 hours." How does this statement apply to this example?

Case Study 2.4

Widgets 'R Us
Widgets 'R Us (WRU) is a medium-sized firm specializ- departments: accounting, sales, production, and engi-
ing in the design and manufacturing of quality widgets. neering. This design has served the company well, and it
The market for widgets has been stable. Historically, has been able to compete by being the low-priced com-
WRU has had a functional organization design with four pany in the industry.
(continued)
86 Chapter 2 • The Organizational Context

In the past three years, the demand for widgets has no one seems to know what happens to it. Department
exploded. New widgets are constantly being developed to heads constantly blame other department heads for the
feed the public's seemingly insatiable demand. The aver- problems.
age life cycle of a newly released widget is 12- 15 months.
Unfortunately, WRU is finding itself unable to compete Questions
successfully in this new, dynamic market. The CEO has 1. You have been called in as a consultant to analyze the
noted a number of problems. Products are slow to market. operations at WRU. What would you advise?
Many new innovations have passed right by WRU because 2. What structural design changes might be undertaken
the company was slow to pick up signs from the market- to improve the operations at the company?
place that they were coming. Internal communication is 3. What are the strengths and weaknesses of the alterna-
very poor. Lots of information gets kicked "upstairs," and tive solutions the company could employ?

Internet Exercises
I. Wegmans has been consistently voted one of the 100 best com- 3. What is an organization that controls project managers,
panies to work for in the United States by Fortune magazine. In documentation, and policies called?
fact, in 2005 it was ranked number l, and in 2012 it was ranked a. Project Management Office
number 4. Go to its Web site, www.wegmans.com, and click on b. Strong matrix
"About Us." What messages, formal and informal, are being c. Functional
conveyed about Wegmans through its Web site? What does the d. Pure project
Web site imply about the culture of the organization?
4. A business analyst has a career path that has been very im-
2. Go to the Web site www.projectstakeholder.com and analyze
portant to her throughout the 10 years of her career. She is
some of the case studies found on the Web site. What do these
put on a project with a strong matrix organizational struc-
cases suggest about the importance of assessing stakeholder
ture. Which of the following is likely viewed as a negative
expectations for a project before it has begun its development
of being on the project?
process? In other words, what are the risks of waiting to address
a. Being away from the group and on a project that
stakeholder concerns until after a project has begun?
might make it more difficult to get promoted
3. Go to a corporate Web site of your choice and access the orga-
b. Working with people who have similar skills
nizational chart. What form of organization does this chart rep-
c. Working long hours because the project is a high
resent: functional, project, matrix, or some other form? Based
priority
on our discussion in this chapter, what would be the likely
d. Not being able to take her own certification tests be-
strengths and weaknesses of this organization's project man-
cause she is so busy
agement activities?
4. Access the corporate Web site for Fluor-Daniel Corporation 5. The functional manager is planning the billing system re-
and examine its "Compliance and Ethics" section at www.fluor. placement project with the newest project manager at the
com/sustainabilityI ethics_ compliance/Pages/ default. as px. company. In discussing this project, the functional man-
What does the "Fluor Code of Business Conduct and Ethics" ager focuses on the cost associated with running the sys-
suggest about the way the company does business? What are the tem after it is created and the number of years the system
strategic goals and directions that naturally flow from the ethi- will last before it must be replaced. What best describes
cal code? In your opinion, how would the ethics statement in- what the functional manager is focusing on?
fluence the manner in which the company manages its projects? a. Project life cycle
b. Product life cycle
PMP Certification Sample Questions c. Project management life cycle
d. Program management life cycle
I. What is the main role of the functional manager?
a. To control resources
b. To manage the project when the project manager Answers: 1 a-The functional manager runs the day-to-day
isn't available operations of his department and controls the resources; 2 c-
c. To define business processes Because senior managers usually outrank the project manager,
d. To manage the project manager they can help with resolving any resource or other conflicts as
they arise; 3 a-The Project Management Office (PMO) typi-
2. What is the typical role of senior management on a cally has all of these responsibilities; 4 a-Being away from her
project? functional group may cause her to feel that her efforts on behalf
a. Support the project of the project are not being recognized by her functional man-
b. Pay for it ager, since the project employs a strong matrix structure; 5 b-
c. Support the project and resolve resource and other The functional manager is focusing on the product life cycle,
conflicts which is developed based on an example of a successful project
d. Resolve resource and other conflicts and encompasses the range of use for the product.
120 Chapter 3 • Project Selection and Portfolio Management

SOLUTION SOLUTION
To answer this question, it is helpful to organize the information into Step One: Try 10%.
a table. Remember that:
Total outflow= $75,000 Discount Factor
Required rate of return = 10%
Year Inflows at 10% NPV
Discount factor= 1/(1 + .10) 1
$10,000 .909 $ 9,090
Discount Net 2 10,000 .826 8,260
Year Cash Flow Factor Inflows 3 10,000 .751 7,510

0 ($75,000) 1.00 ($75,000) Present value of inflows 24,860

30,000 .91 27,300 Cash investment - 24,000
2 30,000 .83 24,900 Difference $ 860
3 25,000 .75 18,750
4 20,000 .68 13,600 Decision: Present value difference at 10% is $860, which is too high .
Try a higher discount rate .
5 20,000 .62 12,400
Payback Step Two: Try 12%.
= 3.3 years
Discount Factor
3.3 Internal Rate of Return Year Inflows at 12% NPV
Suppose that a project required an initial cash investment of $24,000 .893 $ 8,930
$10,000
and was expected to generate inflows of $10,000, $10,000, and
2 10,000 .797 7,970
$10,000 for the next three years. Further, assume that our company's
required rate of return for new projects is 12%. Is this project worth 3 10,000 .712 7, 120
funding? Would it be a good investment if the company's required Present value of inflows 24,020
rate of return were 15%? Use the following figures to determine the Cash investment - 24,000
answers to these questions: Difference $ 20
Cash investment = $24,000
Year 1 inflow= $10,000 Decision: Present value difference at 12% is $20, which suggests that
Year 2 inflow= $10,000 12% is a close approximation of the IRR. This project would be a
Year 3 inflow= $10,000 good investment at 12%, but it would not be acceptable if the firm's
Required rate of return = 12% required rate ofreturn were 15%.

Discussion Questions

I. If you were to prioritize the criteria for a successful screening 5. How are financial models superior to other screening models?
model, which criteria would you rank at the top of your priority How are they inferior?
list? Why? 6. How does the options model address the problem of nonrecov-
2. What are the benefits and drawbacks of checklists as a method erable investment in a project?
for screening project alternatives? 7. What advantages do you see in the GE Tollgate screening
3. How does use of the Analytical Hierarchy Process (AHP) aid approach? What disadvantages do you see? How would you
in project selection? In particular, what aspects of the screen- alter it?
ing process does the AHP seem to address and improve 8. Why is project portfolio management particularly challenging
directly? in the pharmaceutical industry?
4. What are the benefits and drawbacks of the profile model for 9. What are the keys to successful project portfolio management?
project screening? Be specific about the problems that may arise 10. What are some of the key difficulties in successfully implement-
in identifying the efficient frontier. ing project portfolio management practices?

Problems

1. Checklist. Suppose that you are trying to choose which of two One option, Project Demeter, is evaluated as:
IT projects to accept. Your company employs three primary Technology high
selection criteria for evaluating all IT projects: (1) proven tech- Ease of transition low
nology, (2) ease of transition, and (3) projected cost savings. Projected cost savings high
182 Chapter 5 • Scope Management

The WBS serves six main purposes: (1) it can go for task support, who should next be notified
echoes project objectives; (2) it is the organization of the task completion status, and any sign-off require-
chart for the project; (3) it creates the logic for track- ments. The goal of the RAM is to facilitate communi-
ing costs, schedule, and performance specifications cation between project team personnel to minimize
for each element in the project; (4) it may be used transition disruptions as the project moves toward
to communicate project status; (5) it may be used to completion. An additional benefit of the RAM is to
improve overall project communication; and (6) it make the coordination between project managers and
demonstrates how the project will be controlled. The functional department heads easier as they work to make
logic of the WBS is to subdivide project deliverables best use of personnel who may be assigned to the project
into increasingly more specific sublevels to identify for only temporary periods.
all significant activities. The common terminology 5. Describe the roles of changes and configuration
is to first identify the overall project, then the major management in assessing project scope. Significant
deliverables for that project, and finally the work pack- project changes occur for a number of reasons,
ages that must be accomplished to complete each including (1) initial planning errors, either technological
deliverable. or human; (2) additional knowledge of project or envi-
Closely related to the WBS is the Organization ronmental conditions; (3) uncontrollable mandates; and
Breakdown Structure (OBS), which allows companies (4) client requests.
to define the work to be accomplished and assign it to The four stages of configuration management
the owners of the work packages. The budgets for these are (1) configuration identification- breaking
activities are then directly assigned to the departmental down the project and identifying the specifications
accounts responsible for the project work. of its components; (2) configuration reviews-meeting
4. Develop a Responsibility Assignment Matrix for with stakeholders to agree to project definition;
a project. The Responsibility Assignment Matrix (3) configuration control-following agreement
(RAM), sometimes referred to as a linear responsibility with stakeholders, developing the breakdown and
chart, identifies project team personnel who are directly specifications further; and (4) status accounting-
responsible for each task in the project's development. maintaining memory of all current and previous con-
The RAM identifies where responsible team members figurations for reference.

Key Terms
Baseline (p. 178) Cost-plus contracts Responsibility Assignment Turnkey contracts
Conceptual development (p. 175) Matrix (RAM) (p. 172) (p. 175)
(p. 160) Deliverables (p. 164) Scope baseline (p. 165) WBS codes (p. 168)
Configuration management Milestone (p. 174) Scope management (p. 159) Work authorization
(p. 178) Organization Breakdown Scope reporting (p. 175) (p. 174)
Control systems Structure (OBS) Scope statement Work Breakdown Structure
(p. 178) (p. 171) (p. 164) (WBS) (p. 164)
Cost control accounts Project closeout (p. 180) Statement of Work Work packages
(p. 171) Project scope (p. 159) (SOW) (p. 162) (p. 167)

Discussion Questions
1. What are the principal benefits of developing a comprehensive 5. Develop an argument for scope reporting mechanisms. At a
project scope analysis? minimum, what types of reports do you consider necessary for
2. What are the key characteristics of a work package? document control of a project? Why?
3. Create a Work Breakdown Structure for a term paper project or 6. What is the chief purpose of configuration management? In
another school-related project you are working on. What are the your opinion, why has it become increasingly popular in recent
steps in the WBS? Can you identify any substeps for each step? years as a part of the project management process?
4. What are the benefits of developing a Responsibility Assignment 7. What is the logic behind developing a plan for project closeout
Matrix (RAM) for a project? prior to even beginning the project?
 Case Study 5.1 183

Problems

I. Prepare a group project for the classroom. Use as your model (WBS) for the project. What are the key steps, including work
one of the following: packages, tasks, and any related subtasks for the project?
a. Construction project 2. Using the project you have identified in Problem 1, create a
b. Software development project Responsibility Assignment Matrix (RAM) for it, identifying at
c. Events management project (e.g., an awards banquet) least six fictitious project team members.
d. New product development project 3. Research a real project through library resources or the
Develop a Statement of Work (SOW) for the project, using the Internet and develop a brief scope statement for the project,
format of (1) background, (2) task, (3) objectives, (4) approach, a general WBS, and any other information pertaining to the
(5) input source. Next, create a Work Breakdown Structure scope management for that project.

Case Study 5.1

Boeing's Virtual Fence
On January 14, 2011, Secretary of Homeland Security Janet advanced border security initiative in American history."
Napolitano made it official: The Virtual Fence Project A 28-mile stretch of desert, centered on Nogales, Texas,
was to be officially canceled. In her statement explaining was to be the pilot stage in a project that eventually would
the decision, Napolitano cited the difficulty in creating a be used to monitor and control some 6,000 miles of border
unified, fully integrated security system and promised to with both Mexico and Canada.
"pursue a new path forward." What was left unsaid were In late 2006, Boeing was selected as the major
the reasons that led to the final decision-principally, contractor for the SBinet project. Although better known
struggling with a too-complicated technical system that for their military weapon systems, Boeing's Integrated
did not work but was leading to ballooning costs. Defense Systems Unit was made responsible for over-
Illegal crossing into the United States along the all coordination of a massive system of towers as well as
Mexican border has reached epidemic proportions in listening devices, motion sensors, cameras, and radar to
recent years. Fear of drug smuggling, illegal aliens, and be used to detect and help apprehend illegals crossing the
possible terrorist incursions have made the issue of home- border. In fact, the U.S. government chose to outsource
land security one of the major "hot buttons" in the political the entire project to private firms. The government's only
arena, both in Washington, DC, and within states located role was to be as the force responsible for apprehending
along the southern border as well as those in proximity to the people first detected by the SBinet. "Virtually every
Canada. The problem is compounded by the sheer sizes detail is being outsourced from the government to private
of the borders involved. The Mexican/U.S. border runs contractors," said California Democratic Congressman
for nearly 2,000 miles, much of it across desert wastelands Henry Waxman. "The government is relying on private
and inhospitable and remote areas. Establishing any sort contractors to design the programs, build them, and even
of border security, in the wake of the 9/11 attacks, is a conduct oversight of them."
national necessity but a daunting and difficult task. In a nutshell, the system used a chain of 100-foot-tall
The Department of Homeland Security (DHS), towers that each scanned a 360-degree radius for a
organized following the attacks on the World Trade Center distance of 10 miles. Ground radar sensors also attempted
towers, is charged with the responsibility of securing all to detect footsteps, bicycles, and vehicles. The first
borders and points of illegal entry into the United States, $20 million pilot phase, named Project 28 after the length
in cooperation with Customs and Border Protection. As of the part of the desert that it was supposed to cover, was
part of its mandate, it has developed plans for creating a to be completed by mid-June 2007. Boeing selected more
more secure and stable border with Mexico to prevent the than 100 subcontractors to build various components of
continuous flow of undocumented immigrants, drugs, the system, with its project managers maintaining overall
and potential terrorists. For the first stage in this process, control of the development process. Unfortunately, their
DHS proposed a project to physically and electronically structure was unwieldy, and the project was further com-
seal the stretch of the desert between the United States promised by the sheer number of distinct elements and
and Mexico under a multibillion-dollar contract named technical systems Boeing was attempting to integrate.
the Secure Border Initiative Net (SBinet). President Bush The technical challenge of integrating systems including
in May 2006 called SBinet "the most technologically watch towers, sensors, radar, and specialized cameras was
(continued)
184 Chapter 5 • Scope Management

beyond anything Boeing had attempted before. As one model is in place, we see colossal failures and huge cost
article noted, "Successfully integrating complex compo- overruns."
nents is a substantial risk in any project containing mul- Admittedly, the problems that sank the SBinet
tiple, complicated subsystems. Integration risks become project were complicated and came from multiple
especially pronounced in situations where integration sources. Besides the technical challenges of managing
essentially defines the project, such as this case. The risk 100 subcontractors, all required to provide critical com-
increases further when the subsystems themselves consist ponents that Boeing would integrate, the project had
of new, or unproven, technology." So complicated was the effectively shut out most federal agencies and oversight
challenge, in fact, that the virtual fence failed a series of groups. It was difficult to get accurate project status
initial tests, significantly delaying the full deployment of information given the government's decision to "farm
Project 28. out" border security to private contractors. As a result,
Unfortunately, these technical and coordination congressional investigators found that Homeland
problems were never resolved. In the nearly three years Security officials were simply standing by while Boeing
after original testing was done on one section of the fence, provided information that was "replete with unexplained
SBinet had cost the government $672 million dollars, with anomalies, thus rendering the data unfit for effective con-
the end nowhere in sight. Although the total project cost tractor management and oversight." Furthermore, many
was anticipated at $1.1 billion, congressional watchdog critics questioned the feasibility of the original intent of
groups argued that the final cost of the project could soar the project itself, wondering about the likelihood of ever
to over $30 billion. Costs, in fact, were a sore point with the effectively sealing a border that runs through some of the
project from the time it was bid. Originally promising to most inhospitable terrain in North America.
complete SBinet for $1.1 billion, Boeing's revised estimates Senator Joe Lieberman, chair of the Senate
went to $2.5 billion and then, just a few months later, to Homeland Security and Governmental Affairs Committee,
$8 billion. This rapid escalation of projected costs finally offered a scathing critique of the project during testimony
prompted a congressional oversight committee hearing, in by Janet Napolitano, Secretary for Homeland Security,
which Congressman William Lacy Clay, a Missouri demo- stating: "U.S. Customs and Border Protection seems to
crat, demanded information about the ballooning costs have effectively told Boeing-the contractor-'Go ahead
and the extension of the contract period from a Boeing and do what you can do as quickly as you can."' He added,
executive, saying, "You bid on these contracts and then "Without clear goals and expectations, both Customs and
you come back and say, 'Oh we need more time. It costs Border Protection and Boeing underestimated the com-
more than twice as much.' Are you gaming the taxpayers plexity of building the system. And the Border Patrol
here? Or gaming DHS?" In the meantime, beset by con- agents themselves-the people who would be imple-
tilrning problems, Boeing had also revised its estimates for menting and relying on the system every day-were not
the completion date to 2016, more than seven years after consulted on what their actual needs were." Lieberman
the date in the original plan. concluded, "By any measure, SBinet has been a failure-
A major concern was the pyramid-like management a classic example of a program that was grossly oversold
structure that critics said led to cost overruns and poor and has badly under-delivered."23
quality in other major projects. The critics noted that the
multiple subcontracting tiers allowed Boeing to exact a cut Questions
at every turn, and created a conflict of interest because the
company was also in charge of oversight. "The last time I saw 1. What problems do you see emerging from a project
this type of model for managing a project was 'the Big Dig' such as SBinet where the government allows the
in Boston," said Massachusetts Democratic Congressman contractor to determine scope, manage all contractor
Steven Lynch, referring to the highway rerouting mega relations, and decide how to share project status
project that included a 3.5-mile-long tunnel under Boston. information with oversight bodies?
"This is exactly what they did. They fused the oversight 2. Consider the following two arguments: "The failure
function with the engineering and construction function. of SB In et was due to poor scope management" versus
Everybody was in the same tent. Nobody was watching out "SBinet failed because of poor oversight and project
for the owner, who in this case is the U.S. taxpayer. This is controls." Take one side or the other in this argument,
a terrible model and I see a lot of it. Generally when this and justify your response.
 Case Study 5.4 187

the original design. This had been approved by the cus- panels, in order to make the new changes. The impact was
tomer, who failed to communicate the new changes and a time delay of 8 to 10 days and rework costs of opening,
approvals to Reynolds electrical team. The solution required adjusting, and redecorating the site.
changing the location of the projector by a meter and mov-
ing the screens forward by several centimeters. Reynolds
Questions
revised the plans and issued new electrical drawings to the
customer, which were subjected to the approval process 1. What was the impact of scope changes to the project
again. stakeholders?
The site had been handed over from the civil and 2. What planning, monitoring, and control actions could
construction teams complete with decoration. As a result the project manager have taken to avoid the situation?
of this vital communication error regarding the electrical 3. How would you redesign the communications
work, the solution required reworking of parts of the management processes to minimize the problems
site, such as opening the ceilings to access the electrical experienced by the project manager?

Case Study 5.4

London's Millennium Dome
Few major projects in the UK's capital have polarized public consultancy business Buro Happold designed the struc-
opinion more than the construction of the Millennium ture of the dome. The canopy itself was made from a
Dome. The project was conceived in the mid-1990s and coated glass-fiber fabric that was designed to be both
extensively enlarged by the new UK government in 1997. durable and resistant to weather. The dome was com-
Then Prime Minister Tony Blair described it as confi- pleted on time and within budget.
dent, bold, and a symbol of excellence. The idea was that
the structure would be a showcase to celebrate the third Controversies
millennium and would house a must-see exhibition called
The site of the Millennium Dome was the meridian line
the Millennium Experience. In the longer term, after show-
in north Greenwich, and the structure was designed to be
casing the exhibition over the course of the year 2000, the
the largest dome in the world. The site sprawled across
site would be transformed into a soccer stadium or perhaps
a vast contaminated and derelict gasworks that had been
a major arena facility for concerts, conventions, and other
left undeveloped for two decades. In 1993, a Millennium
events.
Commission was established to raise the necessary funds
to celebrate the new millennium. In the following year, the
Construction idea of a national exhibition was suggested, and in 1996, it
The building was conceived as a large white marquee. was decided to go ahead with this concept and base it on
Symbolically, it would have twelve 100-meter support the site in Greenwich.
towers that would represent the twelve months of the The project singularly failed to attract private
year and a clock face. The dome was to be 365 meters in investment, the first clear warning sign that the long-term
diameter, symbolizing the days of the year. The dome was prospects for the site were not encouraging. The UK gov-
designed by the architect Richard Rogers, and the con- ernment undertook raising the necessary funds from the
tractors were MacApline and Laing, who had created a UK National Lottery. Work began on the dome in June
joint venture company for the project. The engineering 1997, and the majority of the construction was completed
(continued)
188 Chapter 5 • Scope Management

by June 1998. It took another year before the content, total, the National Lottery had provided $988 million.
style, and purpose of the exhibition was unveiled. After a The figures were disappointing, but the shortfall from
private opening of the exhibition on December 31, 1999, ticket sales had been covered by a larger-than-estimated
the dome would open to the public for the whole of 2000. National Lottery grant.
The dome was, undoubtedly, one of the most con -
troversial publicly funded works project ever undertaken After the Experience
in the UK. Significant issues existed from the beginning, The Millennium Experience closed at the end of 2000, and
the first being the estimate of the number of visitors the in the following year, the UK government agency English
exhibition would attract. It was originally estimated that Partnerships took control of the dome, which paved the
12 million visitors would be attracted to the dome in 2000, way for the liquidation of the New Millennium Experience
and broadly one million per year thereafter. In May 2000, Company. Finding a potential buyer for the dome and the
the estimate was scaled down to about 7 million. In the site proved to be problematic. The idea of turning it into a
end, the dome actually attracted 6.5 million. soccer stadium had long since collapsed, as the local team,
The estimate regarding visitors was only the first Charlton Athletic, had too small a fan base to justify the
of many project aspects that brought accusations that the move and the expense.
whole project was financially mismanaged. Pressure on the Meanwhile, the dome was costing $1.6 million
project budget began to emerge as early as 1998, which was per month to maintain. The specially commissioned art
14 months before the dome actually opened. Technically, the exhibits were auctioned off at cut prices, and many of the
dome was insolvent by February 2000. Access was another other exhibits were dispersed to other attractions around
major failing of the project. The London Underground was the UK. The dome opened temporarily as a fun fair and
to be extended with additional stations on the Jubilee Line, ice rink in December 2003 and hosted some free music
and this transport network was vital in being able to bring festivals . Over the Christmas period of 2004, the dome
sufficient visitors into the north Greenwich area. The exten- was used to shelter the homeless.
sion work, however, was delayed by 14 months, and when Finally, in 2004, the dome itself and the surround-
the new station opened in May 1999, it was still unfinished ing land were sold to Meridan Delta Ltd., which planned
and had no facilities for disabled people. to create a 26,000-capacity area, providing 24,000 jobs
From the outset, the dome was a political project, and 10,000 homes. English Partnerships and Meridan
or at least it was perceived as one by the media. The dome Deltawould share the proceeds of the development,
acquired a reputation of being a hugely expensive and earning $786 million in the period up to 2018.
financially out-of-control "white elephant." It was perceived
by the media as symbolizing the prestige of Tony Blair and
A New Lease on Life
the government. Labelled as an expensive vanity project,
the dome's reputation plummeted in the eyes of the public In May 2005, the dome was renamed the 02. This was
before the structure was even completed. When the con- part of the rebranding of the site as a major London arena
tents of the exhibition were made public, the floodgates to venue. The 02 opened in June 2007 and was earmarked to
criticism were opened. The public perception had been that host the gymnastics and basketball finals for the London
the exhibition would focus on UK history and the country's 2012 Olympics.
contribution to civilization. In reality, the exhibition was Even the deal with Meridan Delta attracted criti-
modernist, thematic, and "politically correct." cism. It was suggested that the financial arrangements
On the ground, as visitors headed for the dome, the did not represent good value for money for the UK. In
organizational frailties of the project surfaced. Thousands the summer of 2005, Anschutz Entertainment Group
of people had to queue unnecessarily in cold weather (AEG), part of the Meridan Delta business consortium,
because of ticketing issues. Nonetheless, opinion polls announced plans to establish a super-casino in part of the
suggested an 85% satisfaction rate for visitors to the venue. dome. This was at a time when the UK government was
CEO Jennifer Page ofthe New Millennium Experience considering giving permission to one site in the UK to
Company, which was overseeing the exhibition, was fired become the country's first super-casino. The UK city of
just a week before the dome was opened. Despite this, poor Manchester was given the go-ahead, but later the super-
attendance figures and other setbacks, the dome became casino idea was scrapped. There would be no Las Vegas-
the most popular London attraction in 2000, beating the style gambling in the UK after all.
London Eye into second place.
According to the UK National Audit Office, when Turning the Dome Around
the New Millennium Experience Company was liquidated There was a sense of rebirth for the dome when Meridan
in 2002, the dome had cost a total of $1.24 billion. Of this Delta acquired the 999-year lease in 2001. The dome had
 Case Study 5.4 189

been beset with problems and criticism, and it had acquired There had been a huge increase in demand for live events,
the undeserved notoriety for cost overruns. It was also seen and the 02 was able to deliver the very best.
as a project without purpose. Government ministers, com-
munity groups, and business leaders had fought over the From Liability to Loved
project and what to do with the dome after the exhibition.
Even before the foundations were laid for the dome, the
From the time it opened on New Year's Eve 1999,
media had dubbed the site a failure-a doomed, expensive,
six years elapsed before AEG announced its ambitious
vanity-based disaster. As the scope of the project became
plans to create a multipurpose entertainment center.
extended, the cost overruns reached some $400 million.
Undaunted by the failure to create the super-casino, AEG
The dome was a political soccer ball, bounced backward
began a $700 million investment in the site. AEG, fronted
and forward from government to government, agency
by the U.S. billionaire Philip Anschutz, also owned the
to agency, and finally into the hands of private investors.
Los Angeles Staples Center. The dome would remain
No one ever really knew what the dome was for or what
at the heart of the complex with a 20,000-seat stadium
it could become. In real terms, AEG did not have to do a
that would host music concerts, spectacular events from
great deal to improve the image of the site; in fact, the com-
Disney, U.S. National Basketball Association games, and
pany said that the poor public image of the dome actually
the ATP Tennis Masters Cup.
helped them, as any change and a clear direction for the
Transforming the dome into a multipurpose com-
site would be met with almost universal relief and hope.
plex was not without its difficulties. AEG created an
AEG had hoped to use part of the dome to host a
11-screen multiplex cinema, restaurants, and a host of
Las Vegas-style casino complex. The company had esti-
other attractions. The British telecommunications giant
mated that it could generate some $206 million in revenue
02 had agreed to pay $12 million per year for naming
per year and attract around 1.7 million customers. The
rights. When the first music concert was presented in
UK government's change of heart about the super-casino
June 2007, even the sternest critics of the dome were
was a blow to AEG, but the company still harbors hope
forced to eat their words. AEG was determined to estab-
that a super-casino can come to the site in the future.
lish the venue as the prime site for events in London and
In the meantime, AEG will focus on attracting
announced forthcoming features including the Rolling
overnight visitors to the site. The hope is that it can attract
Stones, Prince and Andrea Bocelli, and many other attrac-
cruise ships and conferences and, in this way, make
tions. In the first six months, AEG was able to announce
maximum use of the exhibition and conference space,
84 events and sold a staggering 1.2 million tickets. This was
restaurants, and hotel accommodations. The second
an incredible turnaround from the woeful ticket sales for
development stage of the site was due for completion in
the Millennium Experience. The company also was able to
time for the London 2012 Olympic Games.
establish a rolling program that would see as many as 150
events per year. In the first six months of the new manage-
ment of the site, 70% of the retail space had been leased. Not the Millennium Dome
The huge naming rights deal with 02 was put under threat
as a result of the Olympics. British Telecom (BT) is a
Making the Dome a Long-Term Success "domestic tier one" sponsor of the Olympics, and to prevent
The primary challenge for AEG was to ensure that the a conflict of interest, for the duration of the Olympics, the
02 (as it was now called) would be a resounding success 02 was rebranded as the NGAl (North Greenwich Arena
into the future . Light years away from the bland thematic 1). The Olympic organizers had suggested a temporary
nature of the original exhibition, the new-look venue return of the name Millennium Dome, but AEG was ada-
would focus on quality of product, brands, and events that mant that the negative connotations associated with this
had widespread appeal. name were not acceptable. It would seem that although
AEG had already established itself as a major force the dome could readily become the 02, reversing the
in the leisure and entertainment business. Not only was name, even for a short time, was seen as the kiss of death.
the company running the highly successful Staples Center Obviously BT's one-off $126 million Olympic sponsorship
and the Kings Hockey Club in Los Angeles, but it also payment far outweighed the $9.4 million AEG was receiv-
was having great success with the Nokia Theater in Times ing each year from 02 for the arena sponsorship deal. In
Square, New York. Plans were already well advanced to light of this disagreement over the name of the arena for the
create a major entertainment center in Berlin, Germany, duration of the Olympics, and given the prior name change,
which opened in 2008. it became apparent that an awareness campaign would be
AEG's relaunching of the dome as a major venue necessary to explain to visitors that the Millennium Dome,
for live events came at precisely the right time for the UK. the 02, and the NGAl were, in fact, the same place. 25
190 Chapter 5 • Scope Management

Questions the light of this comment, why was the Millennium

Experience a comparative failure?
1. What does the story of the Millennium Dome suggest
3. AEG as a commercial company managed to visual-
about the importance of considering both technical
ize the future of the dome in a way that no politician
and commercial performance for project success?
could conceive. Do you agree or disagree with this
2. In 1998, the then UK Prime Minister Tony Blair said
view? Why?
that the Dome would be a beacon of the world. In

Internet Exercises
1. Go to www.4pm.com/articles/work_breakdown_structure. c. Begin with a problem statement and Statement of
htm and view a short tutorial on developing an effective Work Work(SOW)
Breakdown Structure. Why does this site specifically warn d. Begin with clear work authorization
against creating a laundry list of project activities? What are
some of the dangers in creating poor work breakdown struc- 4. The project manager wants to make sure that he is
tures and the advantages of doing them effectively? proceeding in the right order as he moves to develop a
2. Go to www.oet.state.mn.us/mastercontract/statements/1863.pdf clear scope for his project. During scope definition, what
to see a process for describing and creating a Statement of Work should he be doing?
for the Minnesota Job Bank Upgrade project. In your opinion, a. Involving stakeholders and verifying that they have
what are some of the critical elements in this Statement of Work? all provided their input to the process
Why? The site also contains an "IT Professional Services Master b. Developing his WBS and OBS
Contract Work Order." Why is this work order so detailed? c. Moving as quickly as possible to the determination of
3. Access www.nccommunitycolleges.edu/IT _Projects/ docs/ scope reporting methods
Data%20W arehouse/Phase%20I/ dw_project_scope_statement. d. Identifying all necessary vendors for any outsourcing
pdf. Analyzing the comprehensive Scope Statement for the data that must be done
warehousing project, what problem is this project seeking to 5. A hospital expansion is being planned for a community.
address? What is the proposed solution? As part of the scope of this project, it will be necessary to
close down the access routes into the emergency room for
PMP Certification Sample Questions major remodeling; however, because this is the only hos-
1. What is the lowest level of decomposition in the Work pital for trauma cases within 50 miles, it is not possible to
Breakdown Structure called? completely shut down the emergency room. The project
a. Work package team will have to find a means to remodel the emergency
b. Deliverable room while allowing for continuous operations of the unit.
c. Subdeliverable This is an example of what?
d. Project a. Negotiation points with the owner
b. Constraints
2. All of the following define a work package EXCEPT: c. Initial assumptions
a. A work package has a deliverable result d. Milestone development
b. It may be considered by its owner as a project in itself
c. A work package may include several milestones Answers: 1. a-The work package is the lowest level in the
d. A work package can be created and addressed regard- Work Breakdown Structure (WBS); 2. d-A work package
less of other organizational procedures of cultural should fit organizational procedures and culture; 3. c-The
considerations project should initiate with a clear problem statement and
3. George has been assigned to be the new project manager understood SOW supporting it; 4. a-It is critical that all
for our project. He is eager to get off to a good start and stakeholders have the opportunity to contribute their input
wants to identify what activities he should first engage in. to the project during the scope definition phase; 5. b-The
How would you advise him to start? need to keep the emergency room open during the remod-
a. Begin with the Work Breakdown Structure (WBS) eling is an example of working around existing project
b. Begin with a clear scope statement constraints.
 Case Study 6.1 225

Discussion Questions
I. This chapter discussed the characteristics of high-performing 6. Distinguish between the traditional, behavioral, and interac-
project teams. List the factors that characterize these teams and tionist views of team conflict. How might each explain and treat
give examples of each one. a project team conflict episode?
2. "Trust can actually encourage disagreement and conflict among 7. Identify the five major methods for resolving conflict. Give an
team members." Explain why this could be the case. example of how each might be applied in a hypothetical project
3. Identify the stages of group development. Why is it necessary team conflict episode.
for project teams to move through these stages in order to be 8. What are some of the guidelines for adopting a strategy of
productive? "principled negotiation"?
4. Gersick's model of punctuated equilibrium offers an alterna- 9. Explain the idea that we should "focus on interests, not posi-
tive view of group development. Why does she suggest that tions." Can you think of an example in which you successfully
some defining moment (such as an explosion of emotion) often negotiated with someone else using this principle?
occurs about midpoint in the project? What does this defining
event accomplish for the team?
5. Explain the concepts of "task" and "psychosocial" outcomes
for a project. Why are psychosocial outcomes so important for
project team members?

Case Study 6.1

Columbus Instruments
Problems have been building at Columbus Instruments, organized along strictly functional lines. Projects are
Inc. (CIC) (not its real name) for several years now with staffed from the departments following negotiations
the new product development process. The last six high- between the project manager and the department heads.
visibility projects were either scrapped outright after Second, the culture of CIC seems to place little status or
excessive cost and schedule overruns or, once released to authority on the project managers. As evidence of this fact,
the marketplace, were commercial disasters. The com- you note that they are not even permitted to write a per-
pany estimates that in the past two years, it has squan- formance evaluation on project team members: That right
dered more than $15 million on poorly developed or applies only to the functional department heads. Third,
failed projects. Every time a new project venture failed, many projects require that team members be assigned to
the company conducted extensive postproject review them on an exclusive basis; that is, once personnel have
meetings, documentation analysis, and market research to been assigned to a project, they typically remain with the
try to determine the underlying cause. To date, all CIC has project team on a full-time basis for the term of the proj-
been able to determine is that the problems appear to lie ect. The average project lasts about 14 months.
with the project management and development process. One morning, as you are walking the hallways, you
Something somewhere is going very wrong. notice a project team "war room" set up for the latest new
You have been called into the organization as a con- product development initiative within the company. The
sultant to try to understand the source of the problems war room concept requires that project team members be
that are leading to widespread demoralization across the grouped together at a central location, away from their
firm. After spending hours interviewing the senior project functional departments, for the life of the project. What
management staff and technical personnel, you are con- intrigues you is a hand-lettered sign you see taped to the
vinced that the problem does not lie with their processes, door of the project war room: "Leper Colony." When you
which are up-to-date and logical. On the other hand, you ask around about the sign, some members of the firm
have some questions about project team productivity. It say with a chuckle, "Oh, we like to play jokes on the folks
seems that every project has run late, has been over bud- assigned to new projects."
get, and has had suboptimal functionality, regardless of Further investigation of project team members
the skills of the project manager in charge. This informa- suggests they are not amused by the sign. One engineer
tion suggests to you that there may be some problems in shrugs and says, "That's just their way of making sure we
how the project teams are operating. understand what we have been assigned to. Last week they
As you analyze CI C's project development process, put up another one that said 'Purgatory."' When you ask
you note several items of interest. First, the company is the project manager about the signs later in the day, he

(continued)
 Case Study 6.3 227

As everyone files out, you lean back in your seat and 2. Explain how differentiation plays a large role in the
consider how you are going to handle this problem. problems that exist between Susan and Neil.
3. Develop a conflict management procedure for your
meeting in 30 minutes. Create a simple script to help
Questions
you anticipate the comments you are likely to hear
1. Was the argument today between Neil and Susan the from both parties.
true conflict or a symptom? What evidence do you 4. Which conflict resolution style is warranted in this
have to suggest it is merely a symptom of a larger case? Why? How might some of the other resolution
problem? approaches be inadequate in this situation?

Case Study 6.3

Johnson & Rogers Software Engineering, Inc.
Kate Thomas, a project manager with Johnson & Rogers either by Erik or through contacts with senior members of
Software Engineering, was looking forward to her first her own firm. She did not know, but would soon discover,
project team "meeting." She applied quotes to the term how they felt about the project and their level of commit-
"meeting" in this case, because she would not actually be ment to it.
sitting down at a table with any of the other members of The first virtual project meeting was scheduled to
the project team. She had been assigned responsibility for start promptly at 9 AM Pacific Standard Time. That led to
a large software development project that would be using the first problem. As Kate stared at the camera mounted
team members from both inside and outside the organiza- above the video monitor, she kept glancing down at the
tion, none of whom were currently employed at the same screen for signs that other members of the team had logged
Redlands, California, office where she worked. In fact, as on. Finally, at 9:15, she was joined by Sally, with Toshiro
she ticked off the names on the legal pad in front of her, logging in shortly afterward. As they chatted and contin-
she did not know whether to be impressed or apprehen- ued to wait for other members to log on, time continued
sive with the project she was about to kick off. to pass. When, at 9:30, no one else had signed on, Kate
asked the secretary to start making phone calls to verify
Vignish Ramanujam (senior programmer)-New
that other members of the team were trying to access the
Delhi, India
system. Eventually, by 10:25, the team consisted of five
Anders Blomquist (systems designer)-Uppsala,
members: Anders, Sally, Penny, Patrick, and Toshiro. It
Sweden
was decided that for the sake of getting something accom-
Sally Dowd (systems engineer)-Atlanta, Georgia
plished, those who were logged on would get started. The
Penny Jones (junior programmer)-Bristol, England
agenda that Kate had prepared and e-mailed out the day
Patrick Flynn (junior programmer)-San Antonio,
before was produced and the meeting began. Within ten
Texas
minutes, the video link to Penny was suddenly lost. The
Erik Westerveldt (subcontractor)-Pretoria, South
other team members waited for five minutes, shuffling in
Africa
various states of impatience for Penny to rejoin the meet-
Toshiro Akame (customer representative)-Kyoto,
ing. There was still no sign ofVignish or Erik.
Japan
The meeting quickly bogged down on technical
The challenge with this team, Kate quickly realized, details as those in attendance realized that several techni-
was going to involve figuring out how to create an inte- cal issues could not be resolved without input from the
grated project team with these people, most of whom she missing team members. Though he tried his best to hide
had never dealt with before. Although Sally and Patrick it, it became apparent that Toshiro, in particular, was frus-
worked for Johnson & Rogers at other plant locations, trated with the lack of progress in this meeting. Kate sug-
the rest of the "team" were strangers. Erik, from South gested that they adjourn until 11, while she made another
Africa, was critical for the project because his company attempt to contact the missing members, but Toshiro
had developed some of the specialized processes the proj- objected, saying, "That is 3 AM in my country. It is now
ect required and was to be treated as an industrial part- past midnight here. I have been here today for 15 hours
ner. The other members of the team had been assembled and I would like to get home." It was finally agreed to
(continued)
228 Chapter 6 • Project Team Building, Conflict, and Negotiation

reconvene tomorrow at the same time. Toshiro agreed, going around the group several times to work out a mutu-
but with bad grace: "Can we not find a time that is more ally agreeable time for these teleconferences, Erik spoke
accommodating to my schedule?" Kate promised to look up: "Maybe we don't all need to meet at the same time,
into the matter. anyway. Kate, why don't you just schedule meetings with
The next day's meeting was a mixed success. each of us as you need to talk?"
Although everyone managed to log on to the system Kate objected by saying, "Erik, the whole point of
within a reasonable period, Penny's connection kept going these teleconferences is to get the team together, not to
down, to the exasperation ofVignish, the senior program- hold one-on-one meetings with each of you."
mer. Although the meeting was conducted with great Erik responded, "Well, all I know is that this is only
politeness by all parties, it was equally clear that no one the first videoconference and already it is becoming a
was willing to offer their candid opinions of the project, burden."
the goals, and how the team was expected to execute their Penny spoke up, "You're lucky. At least your system
assignments. After asking members of the team for hon- works. Mine keeps going up and down at this end."
est feedback and getting little response, Kate eventually "Okay, how about just using e-mails?" suggested
dropped the point. In addition, she had a nagging feeling Erik. "That way it does not matter what the time is at our
that there was some unspoken animosity in the manner in location."
which Patrick and Sally interacted with each other. The other team members agreed that this idea
After some general goal setting and a discussion of made sense and seemed on the verge of endorsing the
team responsibilities, Kate asked if there was a time when use of e-mails for communications. At this point, Kate
they could next meet. In the general silence that followed, stepped back into the discussion and stated firmly, "Look,
Anders spoke up, asking, "Well, how often do you hope to that won't do. We need the opportunity to talk together.
meet like this? To be honest, it is inconvenient for me to E-mails won't do that."
attend these sessions regularly, as our telecom equipment More arguing ensued. Eventually, the team mem-
is in Stockholm and I have to drive an hour each way." bers signed off, agreeing that they needed to "talk further"
Toshiro then spoke up as well. "I am sorry to about these issues. Kate's reaction was one of disappoint-
repeat this point," he said, "but these meeting times are ment and frustration. She sensed reluctance among the
extremely inconvenient for me. Could we not find a time other members of the team to talk about these issues and
that is more generally acceptable?" to use the videoconferencing system in the manner she
Kate replied, "Well, how about 5 PM my time. had envisioned. As Kate sat down to lunch that noon, she
That's ...," Kate paused and quickly consulted her per- pondered how she should proceed from here.
sonal planner, "9 in the morning for you."
This suggestion was met by a wave of objections,
Questions
with the first from Penny who stated, "Uh, Kate, that
would be 1 AM here in England." I. How would you advise Kate to proceed? Analyze the
No sooner had she spoken than Anders, Erik, and conversation she had this morning. What went right?
Vignish chimed in, "Kate, that's 2 AM in Stockholm and What went wrong?
Pretoria," and "Kate, are you aware that that is 6 AM here 2. What should Kate's next steps be?
in New Delhi?" 3. How can she use the technology of the Internet and
Back and forth the team members argued, trying to teleconferencing to enhance team development and
find a reasonable time they could all meet. Finally, after performance?

Exercise in Negotiation
The following is a negotiation scenario between two firms: Steel- (BCT) . Your client is SteelFabrik, Inc. (SFI), a multinational steel
Fabrik, Inc. (SFI) and Building Contractors of Toledo (BCT) . You products manufacturer. Your timetable calls for completion of the
are asked to take either SFI's or BCT's side of the negotiation. How project in 18 months and you have a budget of$6 million. During the
would you prepare for this negotiation? How would you attempt to last few weeks, it has been increasingly difficult to deal with on-site
create a win-win outcome for both parties? demands from your client. SFI has insisted on a list of change orders
to suit their immediate needs for the plant layout and design. Your
counterpart says that because SFI is paying millions for the plant,
SteelFabrik's Perspective they are entitled to make appropriate changes to the project for as
You are the project manager for a new steel fabrication plant con- long as is necessary to "get it right:' You are concerned that every
struction project being built by Building Contractors of Toledo day spent in processing change orders adds further delay to your
252 Chapter 7 • Risk Management

Summary
I. Define project risk. Project risk is defined as any The project team begins the process of developing risk
possible event that can negatively affect the viabil- mitigation strategies once a clear vision of risk factors
ity of a project. We frequently use the equation: is determined. The last step in the risk management
Risk= (Probability of event)(Consequences of event). process, control and documentation, is based on the
Effective risk management goes a long way toward knowledge that risk management strategies are most
influencing project development. To be effective, effective when they have been codified and introduced
however, project risk management needs to be done as part of standard operating procedures. The goal is to
early in the project's life. To quote Shakespeare's create systematic and repeatable strategies for project
Macbeth: "If it were done, when 'tis done; then 'twere risk management.
well it were done quickly." As an important element 3. Understand five primary causes of project risk and
in overall project planning, risk management identi- four major approaches to risk identification. The
fies specific risks that can have a detrimental effect on five primary causes of project risk are (1) financial risk,
project performance and quantifies the impact each (2) technical risk, (3) commercial risk, (4) execution
risk may have. The impact of any one risk factor is risk, and (5) contractual or legal risk. Among the
defined as the product of the likelihood of the event's most common methods for risk identification are
occurrence and the adverse consequences that would (1) brainstorming meetings, (2) expert opinion, (3) past
result. The tremendous number of unknowns in the history, and (4) multiple or team-based assessments.
early phases of a project makes this the time when 4. Recognize four primary risk mitigation strate-
risk is highest. As the project moves forward, the team gies. Risks can be mitigated through four primary
continues to address risk with technical, administra- approaches. First, we can simply accept the risk. We
tive, and budgetary strategies. may choose to do this in a situation in which we either
2. Recognize four key stages in project risk manage- have no alternative or we consider the risk small
ment and the steps necessary to manage risk. There enough to be acceptable. Second, we can seek to mini-
are four distinct phases of project risk management: mize risk, perhaps through entering partnerships or
(1) risk identification, (2) analysis of probability and joint ventures in order to lower our company's expo-
consequences, (3) risk mitigation strategies, and (4) sure to the risk. Third, we can share risk with other
control and documentation. Risk identification focuses organizations or project stakeholders. Finally, when
on determining a realistic set of risk factors that a proj - appropriate, we may seek to transfer risk to other proj-
ect faces. In analysis of probability and consequences, ect stakeholders.
the project team prioritizes its responses to these vari- 5. Explain the Project Risk Analysis and Management
ous risk factors by assessing the "impact factor" of each (PRAM) process. PRAM is a generic project risk
one. Impact factors are determined either in a quali- management approach that offers a model for the life
tative manner, using a matrix approach and consen- cycle steps a project team might adopt in developing
sus decision making, or in more quantitative ways, in a risk management methodology. Nine distinct steps
which all relevant probability and consequence param- in the PRAM model present each phase of the process
eters are laid out and used to assess overall project risk. and its associated deliverables.

Key Terms
Analysis of probability and Control and documenta- Managerial contingency Risk mitigation strategies
consequences (p. 239) tion (p. 239) (p. 246) (p . 239)
Change management Cross-training (p. 246) Mentoring (p. 246) Task contingency
(p. 248) Execution risk (p. 239) Project risk (p. 236) (p. 245)
Commercial risk (p. 239) Financial risk (p. 239) Project Risk Analysis and Technical risk (p. 239)
Contingency reserves Fixed-price contact Management (PRAM)
(p. 245) (p. 245) (p. 250)
Contractual or legal risk Liquidated damages Risk identification (p. 239)
(p. 239) (p. 245) Risk management (p. 236)
 Problems 253

Solved Problem
7.1 Quantitative Risk Assessment both the probability of project risk score and the consequences of
project risk score, as follows:
Refer to the risk factors shown in Table 7.2. Assume your project
team has decided upon the following risk values: P1= (.1 + .5 + .9)/3 = .5
Pm = .l Cc=.7 C1= (.7 + .5 + .3 + .1)/4 = .4
Pc=.5 C5 = .5 RF= .5 + .4- (.5)(.4) = .70
Pd= .9 C,=.3 Conclusion: Medium risk to overall project.
Cp=.l
You wish to determine the overall project risk using a quantitative
method. Following the formulas shown in Table 7.3, we can calculate

Discussion Questions
1. Do you agree with the following statement: "With proper plan- 6. What are the benefits and drawbacks of using a quantitative risk
ning it is possible to eliminate most/all risks from a project"? assessment tool such as the one shown in the chapter?
Why or why not? 7. Give some examples of projects using each of the risk miti-
2. In evaluating projects across industries, it is sometimes possible gation strategies (accept, minimize, share, or transfer). How
to detect patterns in terms of the more common types of risks successful were these strategies? In hindsight, would another
they routinely face. Consider the development of a new soft- approach have been better?
ware product and compare it to coordinating an event, such as 8. Explain the difference between managerial contingency and
a school dance. What likely forms of risk would your project task contingency.
team face in either of these circumstances? 9. What are the advantages of developing and using a systematic
3. Analyze Figure 7.2 (degree of risk over the project life cycle). risk management approach such as the PRAM methodology?
What is the practical significance of this model? What implica- Do you perceive any disadvantages of the approach?
tions does it suggest for managing risk? 10. Consider the following observation: "The problem with risk
4. What are the benefits and drawbacks of using the various forms analysis is that it is possible to imagine virtually anything going
of risk identification mentioned in the chapter (e.g., brain- wrong on a project. Where do you draw the line? In other
storming meetings, expert opinion, etc.)? words, how far do you take risk analysis before it becomes over-
5. What are the benefits and drawbacks of using a qualitative risk kill?" How would you respond?
impact matrix for classifying the types of project risk?

Problems
1. Assessing Risk Factors. Consider the planned construction Based on this information, how would you rate the conse-
of a new office building in downtown Houston at a time when quences of each of the identified risk factors? Why? Construct
office space is in surplus demand (more office space than users). the risk matrix and classify each of the risk factors in the matrix.
Construct a risk analysis that examines the various forms of risk 3. Developing Risk Mitigation Strategies. Develop a preliminary
(technical, commercial, financial, etc.) related to the creation of risk mitigation strategy for each of the risk factors identified
this office building. How would your analysis change if office in Problem 2. If you were to prioritize your efforts, which risk
space were in high demand? factors would you address first? Why?
2. Qualitative Risk Assessment. Imagine that you are a member 4. Quantitative Risk Assessment. Assume the following
of a project team that has been charged to develop a new prod- information:
uct for the residential building industry. Using a qualitative risk
analysis matrix, develop a risk assessment for a project based on
Probability of Failure Consequences of Failure
the following information:
Maturity= .3 Cost= .1
Complexity= .3 Schedule= .7
Identified Risk Factors Likelihood Dependency= .5 Performance= .5
1. Key team members pulled off project 1. High
2. Chance of economic downturn 2. Low Calculate the overall risk factor for this project. Would you
3. Project funding cut 3. Medium assess this level of risk as low, moderate, or high? Why?
4. Project scope changes 4. High 5. Developing Risk Mitigation Strategies. Assume that you are
a project team member for a highly complex project based on
5. Poor spec. performance 5. Low
a new technology that has never been directly proven in the
254 Chapter 7 • Risk Management

marketplace. Further, you require the services of a number of 6. Assessing Risk and Benefits. Suppose you are a member of a
subcontractors to complete the design and development of this project team that is evaluating the bids of potential contractors
project. Because you are facing severe penalties in the event for developing some subassemblies for your project. Your boss
the project is late to market, your boss has asked you and your makes it clear that any successful bid must demonstrate a bal-
project team to develop risk mitigation strategies to minimize ance between risk and price. Explain how this is so; specifically,
your company's exposure. Discuss the types of risk that you are why are price and risk seen as equally important but opposite
likely to encounter. How should your company deal with them issues in determining the winner of the contract? Is a low-price/
(accept them, share them, transfer them, or minimize them)? high-risk bid acceptable? Is a high-price/low-risk bid accept-
Justify your answers. able? Why or why not?

Case Study 7.1

Classic Case: de Havilland's Falling Comet
The Development of the Comet with the 300 miles per hour a propeller could gener-
The de Havilland Aircraft Company of Great Britain had ate. For overseas flight, in particular, this advantage
long been respected in the aircraft manufacturing indus- was important. It could reduce the length of long flights
try for its innovative and high-performance designs. from a mind-numbing two to three days to mere hours,
Coming off their performance work during World War II, encouraging more and more businesspeople and tour-
the company believed that they stood poised on the brink ists to use airplanes as their primary method for travel.
of success in the commercial airframe industry. The de Further, jets tended to be quieter than propeller-driven
Havilland designers and executives accurately perceived aircraft, giving a more comfortable interior sound level
that the next generation of airplane would be jet-powered. and ride to passengers.
Consequently, they decreed that their newest commercial De Havilland engineers sought to create a stream-
airframe, tentatively called the Comet, would employ jet lined airplane that could simultaneously carry up to
power and other leading-edge technology. 50 passengers in comfort, while maintaining aerodynamics
Jets offered a number of advantages over propeller- and high speed. After working with a number of design
driven airplanes, the most obvious of which was speed. alternatives, the Comet began to take shape. Its design was,
Jets could cruise at nearly 450 miles per hour compared indeed, distinctive: The four jet engines were embedded

FIGURE 7.9 The de Havilland Comet

 Case Study 7.1 255

in pairs in the wing roots, at the point where they joined disintegrated over the Mediterranean Sea, near the island
the fuselage. From the front, the aircraft looked as though of Elba. Most of the airplane was lost at the bottom of the
its wings were literally held in place by the engines. The sea, but amid the flotsam were recovered 15 bodies of pas-
result of these innovative engineering designs was an air- sengers and crew. A local physician who examined the
craft that had remarkable stability in flight, was sleek in remains noted: "They showed no look of terror. Death
appearance, and was very fast. must have come without warning." As a safety precaution,
Another distinctive feature of the aircraft was the BOAC instituted a ban on the use of Comets until the air-
pressurized cabin, intended to maintain passenger com- planes had been thoroughly checked over. Technicians
fort at cruising altitudes of up to 30,000 feet. In its original could find nothing wrong with the new aircraft and, fol-
testing for safety, de Havilland engineers had pressurized lowing recertification, the airplanes were again brought
the airframe to more than five times the recommended air back into service.
density to ensure that there was a clean seal. Consequently, Alas, it was too soon. On the 8th day of April,
they were confident that the pressurization system would only 16 days after the Comet was reintroduced into ser-
perform well at its lower, standardized settings. Finally, vice, a third aircraft, operated by South African Airways,
in an effort to add some flair to the design, each window departed from Rome's Ciampino airport for Cairo, one of
in the passenger cabin was square, rather than the small, the legs of its regular flight from London to Johannesburg.
round or oval shapes so commonly used. Under perfect flying weather, the airplane rapidly gained
Knowing that they were facing competition from its cruising altitude of 26,000 feet and its airspeed of
Boeing Corporation to be first to market with a com- almost 500 miles an hour. Suddenly, the flight radio went
mercial jet, de Havilland's goal was to introduce its new silent and failed to answer repeated calls. A search of the
aircraft as quickly as possible, in order to establish the ocean off the island of Stromboli, Italy, turned up an oil
standard for the commercial airline industry. At first, slick and some debris. Because of the depth of the water
it appeared that they had succeeded: BOAC (British and the time necessary to arrive at the crash site, there was
Overseas Airways Corporation) ordered several Comets, little to be found by search crews. Five bodies were all that
as did Air France and the British military. De Havilland were recovered this time, though with an eerie similarity
also received some queries from interested American air- to the victims of the second disaster: Facial expressions
line companies, notably Pan American Airlines. It looked showed no fear, as though death had come upon them
as though de Havilland's strategy was working; the com- suddenly.
pany was first to market with a radical new design, using
a number of state-of-the-art technologies. BOAC's first \Vhat"\Vent"\Vrong?
nine Comet ls entered service with the airline on May 2, Investigators swarmed over the recovered wreckage of
1952. The future looked bright. the aircraft and reexamined the pieces of the first from
the Calcutta accident while also conducting underwater
Troubles searches at the sight of the second crash near the island of
In early May of 1953, a brand new Comet operated by Elba. Guided by underwater cameras, investigators were
BOAC left Calcutta, India, and flew off into the afternoon able to collect sufficient aircraft fragments (in fact, they
sky. Six minutes later and only 22 miles from Calcutta's finally recovered nearly 70% of the airframe) to make
Dum Dum Airport, the aircraft exploded and plunged to some startling discoveries. The foremost finding, from the
earth, killing all 43 passengers and crew on board. There recovery of the entire, intact tail section, was that the fuse-
had been no indication of problems and no warning from lage of the aircraft had exploded. Second, it appeared that
the pilots of technical difficulties. Investigators from engine failure was not the cause of the accidents. Another
Great Britain and India tended to believe the crash came finding was equally important: The wings and fuselage
about due to pilot error coupled with weather conditions. showed unmistakable signs of metal fatigue, later shown
Evidence from the wreckage, including the tail section, to be the cause of failure in all three aircraft. This point
seemed to indicate that the aircraft had been struck by was important because it advanced the theory that the
something heavy, but without any additional information problem was one of structural design rather than simple
forthcoming, both the authorities and de Havilland engi- part failure.
neers laid the blame to external causes. Britain's Civil Aviation Board immediately
January 10, 1954, was a mild, clear day in Rome grounded the entire Comet fleet pending extensive
as passengers boarded their BOAC aircraft for the final reviews and airworthiness certification. For the next five
leg of their flight from Singapore to London. When the months, the CAB set out on an extensive series of tests to
airplane had reached its cruising altitude and speed, it isolate the exact causes of the mysterious crashes. Before

(continued)
256 Chapter 7 • Risk Management

testing was complete, one Comet had been tested liter- to cabin pressure blowout. Engineers suspected that the
ally to destruction, another had its fuel tanks ruptured, critical failure of the aircraft occurred following sudden
more than 70 complete test flights were made in a third, depressurization, when one or more windows were liter-
and between 50 and 100 test models were broken up. The ally blown out of the aircraft. This led to a sudden "gyro-
results of the extensive tests indicated a number of struc- scopic moment" as the aircraft nosed down and began its
tural and design flaws. plunge to earth.
Although the aircraft's designers were convinced Although at the time no one would admit it, the
that the structure would remain sound for 10,000 flight handwriting was on the wall. After two years, in which
hours before requiring major structural overhauling, sim- Comets carried more than 55,000 passengers over 7 mil-
ulations showed unmistakable signs of metal fatigue after lion air miles, the Comet 1 was never to fly again. De
the equivalent of only 3,000 flight hours. Experts argued Havilland had indeed won the race to be first to market
that even when fatigue levels were revised downward to with a commercial jet: a race that it would have been bet-
less than 3,000 hours, Comets would not be safe beyond ter to have never run at all. 13
1,000 flying hours, a ludicrously low figure in terms of the
amount of use a commercial airliner is expected to receive.
Questions
In addition, testing of the fuselage offered disturbing indi-
cations of the cause of failure. Specifically, cracks began 1. How could risk management have aided in the devel-
developing in the corners of the cabin windows, and these opment of the Comet?
cracks were exacerbated by repeated pressurization and 2. Discuss the various types of risk (technical, financial,
depressurization of the cabin. The investigators noted that commercial, etc.) in relation to the Comet. Develop a
this result was most pronounced along the rivet lines near qualitative risk matrix for these risk factors and assess
the fuselage windows. them in terms of probability and consequences.
Testing also demonstrated that the wings had a low 3. Given that a modified version of the Comet (the Comet
resistance to fatigue. At a number of stages in the tests, IV) was used until recently by the British government
serious cracks appeared, starting at the rivet holes near the as an antisubmarine warfare aircraft, it is clear that the
wheel wells and finally resulting in rivet heads in the top design flaws could have been corrected given enough
wing surface actually shearing off. Engineers and inves- time. What, then, do you see as de Havilland's critical
tigators were finding incontrovertible evidence in the error in the development of the Comet?
pieces of recovered wreckage that the cause of the sudden 4. Comment on this statement: "Failure is the price we
disintegration of the aircraft could only have been due pay for technological advancement."

Case Study 7.2

Nicoll Highway Collapse
On April 20, 2004, part of the Nicoll Highway in Singapore fallen into the hole and there was evidence of twisted steel
collapsed. Six lanes of the highway disappeared into a support beams.
100-foot hole when a tunnel being constructed underneath
the highway collapsed. Incredibly, no one was driving on Initial Response
the usually congested highway. The tunnel was part of the Authorities in Singapore instituted an inquiry into the
underground Circle MRT (Mass Rapid Transport) Line, and incident. They also suspended 20 other excavation proj-
the supporting structure for the excavation work had failed. ects that were ongoing at the time. These were shut down
Four workers were killed in the incident and three at great expense and delay as new best-practice codes were
others were injured. Rescuers hunted in vain for survivors put in place. Meanwhile, experts from across the world
for three days before efforts were called off. By this stage, were brought in to investigate the accident and determine
it was clear that the danger to the rescue teams far out- exactly what had happened.
weighed the likelihood of finding any survivors. The other It became clear that a number of factors had con-
concern was the fact that the ground around the collapse tributed to the collapse. Most significant was the fact
had to be stabilized in order to ensure that no further col- that the geological findings had been misinterpreted.
lapses would occur. The structure of the tunnel had been under-designed as
The immediate reason for the collapse was that the a direct result of the fact that the engineers had assumed
retaining wall holding up the evacuation work was insuf- that the soil's shear strength was greater than it actually
ficient to hold up the tunnel. Two construction cranes had was. There were also issues with the structural bracing
 Case Study 7.2 257

system being used. The collapse had taken place at a point about the problems, and NLC would have had to bear the
where the bracing was overloaded, and the system lacked cost of the extra delays to the work schedule. Similar struts
the capacity to redistribute the load between the other had failed on two other NLC sites, but NLC had insisted
supports if this part of the bracing failed. The engineers that the problem was in hand and pressured the LTA to
had underestimated the strut loads. allow works to continue. It was therefore LTA's conten-
tion that NLC had failed to reveal sufficient information
Apportioning Blame for LT A to make an informed judgment.
A Committee of Inquiry in May 2005 was told that the
NLC'sView
disaster was caused by a failure of a connection between
horizontal struts and waling beams. The struts and beams NLC was certain that the reason for the collapse was
supported the diaphragm walls. The general causes of unforeseen downward movement of the diaphragm walls.
the collapse had already been agreed upon by the Land According to NLC:
Transport Authority (LTA) and Nishimatsu-Lum Chang • There was a sudden drop in the height of the
(NLC), who were the main contractors in the joint venture; wall relative to the posts that were supporting the
the NLC lead designer Maunsell Asia; the project engineer temporary struts.
Paul Broome; and L&M and Kori (subcontractors). • This changed the angle at which the struts were
connected.
LTA's View • In turn, this caused the walls to deform and fail.
It had been found that Nishimatsu-Lum Chang (NLC) was NLC called this "sway failure," which occurs when
negligentful, reckless, and dishonest during design and con- violent forces act on the diaphragm walls. The phenom-
struction, according to the LTA. LTA cited that the design enon had been seen in other parts of the Circle Line, but
errors had begun with the soil analysis at the earliest stages not at the Nicoll Highway.
of the project. According to K.Shanmugam, LTA's counsel: NLC maintained that the collapse of the tunnel was
• Analysis of the ground conditions had been based not inevitable, but was probably caused because the forced
on the use of Method A, which looked at the sway mechanism accelerated the failure. NLC admitted
mechanical properties of drained soil. that the struts were close to the limit of their performance,
• The soil encountered in the deep excavation was but maintained that the loads did not exceed the capacity
in fact highly plastic marine clay, and NLC should of the temporary works they had carried out.
have used data for undrained soils. Furthermore, NLC expressly countered LTA's sug-
• In using the wrong method, NLC under predicted the gestion that the soil analysis was the root cause of the
forces that would act on the works being carried out. disaster, contending:
• This led to an under-design in the temporary works. • It was appropriate to use drained soil data, as it
• As a result of this, the system being installed did not provides a more conservative analysis.
have the capacity required. • Although Method A had not been used for deeper
• The incorrect soil analysis also meant that as the excavations in Singapore before, LT A was aware of
excavations got deeper, the errors and potential the method being used and generally agreed with
failures became more acute. the findings.
• The strut connections were under-strength by a • LT A had been specifically briefed about the soil
factor of two. analysis as early as May 2002.
• NLC also substituted C channel shaped steel sections • At that time, LT A's own engineer had stated that
for plate stiffeners in an attempt to strengthen the other soil analysis types were too conservative.
connections.
• However, NLC had tried to cut costs by using scrap NLC Admissions
material to replace the stiffener plates when they
The failure took place at the ninth-level strut connections,
had run out of supplies.
which was around 30 meters below the ground and just
LT A went on to claim that NLC had ignored its own 3 meters above formation level. As the connections failed,
risk assessments. Some of the stiffener plates were already the diaphragm wall deformed. This overloaded the struts
buckling, but NLC had hidden this from LTA in order to which caused them to buckle. In turn, this triggered a
keep them from insisting on additional works. NLC was gradual and progressive collapse of the tunnel walls. In
already behind schedule in April 2004 and had incurred the event, just one hour elapsed between the failure of the
late penalties of some $25 million. LTA would have first strut connection and the complete collapse, which
undoubtedly ordered NLC to cease work had it known triggered devastating damage to the highway.
(continued)
258 Chapter 7 • Risk Management

NLC admitted that there had been a failure in the the development of a code of practice for deep excavation
temporary works. They put this down to under-design work were all part of a raft of new legislation.
and inappropriate detail of the connections. They also The Singapore government was convinced that the
admitted that their own engineers had misinterpreted the failures that led to the collapse of the highway and the
relevant building code, which had resulted in the use of deaths had been entirely avoidable and were unacceptable.
smaller steels than were actually needed for the struts. From this point, all major construction projects would
be audited in terms of their safety. The government was
The Greatest Engineering Disaster of the Past Decade? determined to point out that small, incremental improve-
Although the general causes for the collapse of the high- ments would not bring about the level of safety that is
way were agreed upon between all parties in 2005, as of expected of such projects. As a result, it was necessary for
May 2012, just one person had been prosecuted for their several government departments to prioritize the safety
part in the disaster. Nonetheless, many lessons had been issues and bring in sweeping reforms.
learned. Work on the MRT has commenced once more, Today, with the reforms in place, the pace of work to
but this time far more heavy-duty temporary works are extend the MRT system is as rapid as before, but far safer.
being demanded. Additional robustness in design is now The Downtown Line is seen as the key to the development
demanded of contractors. of the Marina Bay area. The Bayfront Station will be under-
From the outset, braced excavations were used for neath the leisure and entertainment complex, the Integrated
transport construction projects in Singapore, and each Resort. Here the excavations will be at 24 meters. In order
of the MRT stations were constructed using the "bottom- to counter the weak soil, thick diaphragm walls have been
up" method. This meant excavating and propping up the used, and these have been stiffened by cross walls and slabs.
excavations with steel struts. These were supported at their Even the cut and cover tunnels (just like the one that caused
mid-span by king posts and beams across the face of the the collapse at Nicholl Highway) have up to seven levels
diaphragm walls. The struts were placed at 3-meter intervals. of strutting to support them. Lessons were learned, and
Today, the "top-down" method is preferred. This legislation has been enacted to back them up. 14
involves constructing the station with a permanent rein-
forced concrete roof slab. The slab operates rather like
Questions
a huge strut, which means that struts are not necessary.
At a stroke, the time-consuming installation of struts has 1. In what ways were the project's planning and scope
been eliminated, and the safety risks are far lower. management appropriate? When did the planners
begin knowingly taking unnecessary risks? Discuss the
Government Response issue of project constraints and other unique aspects of
In the immediate aftermath of the inquiry, the Singapore the tunnel in the risk management process. Were these
government accepted the findings in full and was quick to issues taken into consideration? Why or why not?
announce a series of new legislation that would improve 2. Conduct either a qualitative or quantitative risk
safety standards in the construction industry. The assessment on this project. Identify the risk factors
Joint Review Committee (JRC), made up from various that you consider most important for underground
government departments, announced that there would be tunnel construction. How would you assess the
far stiffer penalties for professionals who had shown dere- riskiness of this project? Why?
liction of duty and care. A new licensing scheme was intro- 3. What forms of risk mitigation would you consider
duced for specialist contractors; additional training and appropriate for this project?

Internet Exercises
1. Go to http: // www.informationweek.com / whitepaper / within the United States. Go to www.fema.gov/about/divisions/
Management/ROI-TCO/managing-risk-an-integrated-approac- mitigation.shtm. Look around the site and scroll down to see
wp l 229549889607?article1D=54000027 and access the article on examples of projects in which the agency is involved. How does
"Managing Risk: An Integrated Approach." Consider the impor- FEMA apply the various mitigation strategies (e.g., accept, min-
tance of proactive risk management in light of one of the cases imize, share, and transfer) in its approach to risk management?
at the end of this chapter. How were these guidelines violated by 3. Go to www.mindtools.com/pages/article/newTMC_07.htm
de Havilland or the Tacoma Narrows construction project orga- and read the article on managing risks. What does the article
nization? Support your arguments with information either from say about creating a systematic methodology for managing
the case or from other Web sites. project risks? How does this methodology compare with the
2. FEMA, the Federal Emergency Management Agency, is qualitative risk assessment approach taken in this chapter? How
responsible for mitigating or responding to natural disasters does it diverge from our approach?
288 Chapter 8 • Cost Estimation and Budgeting

Complexity Weighting

Function Low Medium High Total

Number of Inputs 3X 6X 9X
Number of Outputs 2X 6X 10 X
Number of Interfaces 1X 3X sx
Number of Queries 4X 8X 12 X
Number of Files 4X 6X 8X

SOLUTION a table as shown below, in which the relative complexity of the five
Once we know the number of requirements for each of the five programming functions is multiplied by the number of screen re-
programmer functions and the complexity weighting for the activi- quirements. The table shows that the total number of function
ties, the calculation of total function points requires that we create points for this project is 370.

Complexity Weighting

Function Low Medium High Total

Number of Inputs 3X4= 12

Number of Outputs 6X7= 42
Number of Interfaces 5 x 12 = 60
Number of Queries 8X20= 160
Number of Files 6X 16 = 96

3. Calculating Budget Estimates Using the Learning Curve where

Assume you have a software project that will require the cod- Yx = the time required for the steady state, x, unit of output
ing services of a senior programmer to complete 14 coding a = the time required for the initial unit of output
sequences that are relatively similar. We know that the program- X =the number of units to be produced to reach the steady state
mer's learning rate is .90 and that the first coding sequence is b = the slope of the learning curve, represented as: log decimal
likely to take her 15 hours to complete. Using the learning curve learning rate/log 2
formula, calculate the steady state time to code these sequences.
b = log0.90/log2
SOLUTION -0.4576/0.301
Recall that the learning curve formula for calculating the time -0.1521
required to produce the steady state unit of output is represented as: Yx = 15(14) - 0.1521
¥,. = aXb Yx = 10.04hours

Discussion Questions
1. Describe an environment in which it would be common to bid 6. Think of an example of parametric estimating in your personal
for contracts with low profit margins. What does this environ- experience, such as the use of a cost multiplier based on a simi-
ment suggest about the competition levels? lar, past cost. Did parametric estimating work or not? Discuss
2. How has the global economy affected the importance of cost the reasons why.
estimation and cost control for many project organizations? 7. Suppose your organization used function point analysis to esti-
3. Why is cost estimation such an important component of proj- mate costs for software projects. How would the expertise level
ect planning? Discuss how it links together with the Work of a recently hired programmer affect your calculation of their
Breakdown Structure and the project schedule. function points on a monthly basis when compared to an older,
4. Imagine you are developing a software package for your com- more experienced programmer?
pany's intranet. Give examples of the various types of costs 8. Put yourself in the position of a project customer. Would you
(labor, materials, equipment and facilities, subcontractors, etc.) insist on the cost adjustments associated with learning curve
and how they would apply to your project. effects or not? Under what circumstances would learning curve
5. Give reasons both in favor of and against the use of a personal costs be appropriately budgeted into a project?
time charge as a cost estimate for a project activity.
360 Chapter 10 • Project Scheduling

4. When deciding on whether or not to crash project activities,

Activity Duration ES EF LS LF Slack
a project manager was faced with the following information.
A 3 0 3 0 3 Activities on the critical path are highlighted with an asterisk:
B 5 3 8 5 10 2
c 7 3 10 3 10 Normal Crashed
D 3 10 13 10 13 Activity Cost Duration Extra Cost Duration
E 5 8 13 12 17 4
A $ 5,000 4 weeks $4,000 3 weeks
F 4 13 17 13 17
B* 10,000 5 weeks 3,000 4 weeks
G 2 10 12 15 17 5
H 5 17 22 17 22
c 3,500 2 weeks 3,500 1 week
D* 4,500 6 weeks 4,000 4 weeks
E* 1,500 3 weeks 2,500 2 weeks
3. You are considering the decision of whether or not to crash your F 7,500 8 weeks 5,000 7 weeks
project. After asking your operations manager to conduct an G* 3,000 7 weeks 2,500 6 weeks
analysis, you have determined the "precrash" and "postcrash"
H 2,500 6 weeks 3,000 5 weeks
activity durations and costs, shown in the table below (assume
all activities are on the critical path): a. Identify the sequencing of the activities to be crashed in the
first four steps. Which of the critical activities should be
crashed first? Why?
Normal Crashed
b. What is the project's critical path? After four iterations
Activity Duration Cost Duration Cost involving crashing project activities, what has the critical
path shrunk to? (Assume all noncritical paths are ~ a fully
A 4 days $1,000 3 days $2,000
crashed critical path.)
B 5 days 2,500 3 days 5,000
c. Suppose project overhead costs accrued at a fixed rate of
c 3 days 750 2 days 1,200 $500 per week. Chart the decline in direct costs over the
D 7 days 3,500 5 days 5,000 project life relative to the increase in overhead expenses.
E 2 days 500 1 day 2,000 d. Assume that a project penalty clause kicks in after 19 weeks.
F 5 days 2,000 4 days 3,000 The penalty charged is $5,000 per week. When the penalty
G 9 days 4,500 7 days 6,300 charges are added, what does the total project cost curve
look like? Develop a table listing the costs accruing on a per-
week basis.
a. Calculate the per day costs for crashing each activity. e. If there were no penalty payments accruing to the project,
b. Which are the most attractive candidates for crashing? would it make sense to crash any project activities? Show
Why? your work.

Case Study 10.1

Project Scheduling at Blanque Cheque Construction (A)
Joe has worked for Blanque Cheque Construction (BCC) a strip mall, directly across the street from a suburban
for five years, mainly in administrative positions. Three college campus. The size of the property and building
months ago, he was informed that he was being trans- costs make it prudent to develop the property for four
ferred to the firm's project management group. Joe was stores of roughly equal size. Beyond that desire, the
excited because he realized that project management was owners have made it clear to BCC that all project man-
typically the career path to the top in BCC, and everyone agement associated with developing the site is BCC's
had to demonstrate the ability to "get their feet wet" by responsibility.
successfully running projects. Joe is sitting in his office at BCC trying to develop a
Joe has just left a meeting with his superior, Jill, reasonable project plan, including laying out some of the
who has assigned him project management responsibili- important project activities. At this point, he is content to
ties for a new construction project the company has suc- stick with general levels of activities; that is, he does not
cessfully bid. The project consists of developing a small want to get too specific yet regarding the various con-
commercial property that the owners hope to turn into struction steps for developing the site.
 MS Project Exercises 361

Questions the following approaches? Are some more useful than

others?
1. Develop a project network consisting of at least 20
a. Expert opinion
steps that should be done to complete the project.
b. Past history
As the case suggests, keep the level of detail for these
c. Mathematical derivation
activities general, rather than specific. Be sure to indi-
3. Joe is trying to decide which scheduling format to
cate some degree of precedence relationship among
employ for his planning: AON or AOA. What are
the activities.
some of the issues that Joe should first consider prior
2. Suppose you now wanted to calculate duration esti-
to choosing between these methods?
mates for these activities. How would you make use of

Case Study 10.2

Project Scheduling at Blanque Cheque Construction (B)
Joe has been managing his project now for more than the project is fixed and cannot be altered without incur-
12 months and is becoming concerned with how far ring substantial penalties, something BCC is not prepared
behind the schedule it is slipping. Through a series of to accept. The message to Joe is clear: You can spend some
mishaps, late supplier deliveries, bad weather, and other additional money but you cannot have any extra time.
unforeseen circumstances, the project has experienced Joe has just called a meeting with the site supervi-
one delay after another. Although the original plan called sor and other key project team members to discuss the
for the project to be completed within the next four possibility of crashing the remaining project activities.
months, Joe's site supervisor is confident that BCC can- He calculates that crashing most of the final activities will
not possibly make that completion date. Late completion bring them in close to the original contracted completion
of the project has some severe consequences, both for date but at a substantial cost. He needs to weigh these
BCC and for Joe. For the company, a series of penalty options carefully with his team members to determine if
clauses kicks in for every week the project is late past the crashing makes sense.
contracted completion date. For Joe personally, a late
completion to his first project assignment can be very
Questions
damaging to his career.
Joe has just finished a meeting with his direct 1. What are some of the issues that weigh in favor of and
supervisor to determine what options he has at this point. against crashing the project?
The good news is that the BCC bid for the construction 2. Suppose you were the site supervisor for this project.
project came with some additional profit margin above what How would you advise Joe to proceed? Before
is common in the industry, so Joe's boss has given him some deciding whether or not to crash the project, what
"wiggle room'' in the form of$30,000 in discretionary budget questions should you consider and how should you
money if needed. The bad news is that the delivery date for evaluate your options?

MS Project Exercises
Exercise 10.1
Suppose we have a complete activity predecessor table (shown on the A through E, their durations, and their predecessors. Note that all
next page) and we wish to create a network diagram highlighting the duration times are in days.
activity sequence for this project. Using MS Project, enter activities
 Problems 455

expenditures, is not related to the work that was accomplished. Use of Earned Value Data . The benefits to project manage-
Table 13.13 shows a simple comparison of planned and actual ment of the earned value approach come from the disciplined
spending, which is unrelated to work performed and therefore not a planning conducted and the availability of metrics that show real
useful comparison. The fact that the total amount spent was $9 less variances from the plan in order to generate necessary corrective
than planned for this period is not useful without the comparisons actions. 14
with work accomplished.

TABLE 13.13 Spend Comparison Approach Work Units

A B c D E F Total
Planned spend 10 15 10 25 20 20 100
Actual spend 9 22 8 30 22 91
Variance -7 2 -5 -2 20 9, or 9%

Discussion Questions
1. Why is the generic four-stage control cycle useful for under- 7. Consider the major findings of the research on human factors
standing how to monitor and control projects? in project implementation. What common themes seem to
2. Why was one of the earliest project tracking devices referred to emerge from the research on behavioral issues as a critical ele-
as an S-curve? Do you see value in the desire to link budget and ment in determining project status?
schedule to view project performance? 8. The 10 critical success factors have been applied in a variety of
3. What are some of the key drawbacks with S-curve analysis? settings and project types. Consider a project with which you
4. What are the benefits and drawbacks with the use of milestone have been involved. Did any of these factors emerge clearly as
analysis as a monitoring device? being the most important for the project's success? Why?
5. It has been said that Earned Value Management (EVM) came 9. Identify the following terms: PV, EV, and AC. Why are these
about because the federal government often used "cost-plus" terms important? How do they relate to one another?
contractors with project organizations. Cost-plus contracting 10. What do the Schedule Performance Index and the Cost
allows the contractor to recover full project development costs Performance Index demonstrate? How can a project manager
plus accumulate profit from these contracts. Why would requir- use this information to estimate future project performance?
ing contractor firms to employ Earned Value Management help 11. Suppose the SPI is calculated as less than 1.0. Is this good news
the government hold the line against project cost overruns? or bad news for the project? Why?
6. What are the major advantages of using EVM as a project con-
trol mechanism? What do you perceive as its disadvantages?

Problems
1. Using the following information, develop a simple S-curve Draw this S-curve. What does the new S-curve diagram rep-
representation of the expected cumulative budget expenditures resent? How would you explain the reason for the different,
for this project (figures are in thousands) . non-S-shape of the curve?
3. Assume the following information (figures are in thousands):
Duration (in days)

10 20 30 40 50 60 70 80 Budgeted Costs for Sample Project

Activities 4 8 12 20 10 8 6 2 Duration (in weeks)
Cumulative 4 12 24 44 54 62 68 70
5 10 15 20 25 30 35 40 45 Total
2. Suppose the expenditure figures in Problem 1 were modified as Design 4 4 2
follows (figures are in thousands).
Engineer 3 6 12 8
Insta ll 4 12 24 6
Duration (in days)
Test 2 6 6 4 2
10 20 30 40 50 60 70 80 Total
Activities 4 8 10 14 20 24 28 8 Monthly
Cumulative 4 12 22 36 56 80 108 116 Cu mu I.
490 Chapter 14 • Project Closeout and Termination

2. Recognize the seven key steps in formal project • Costs exceed business benefits.
closeout. The seven steps of the formal project • The project no longer meets strategic fit criteria.
closeout are: • Deadlines continue to be missed.
Finishing the work • Technology evolves beyond the project's scope.
Handing over the project
4. Know the challenges and components of a final project
Gaining acceptance for the project
report. The components of the final project report
Harvesting the benefits
include evaluations of project performance, administrative
Reviewing how it all went
performance, organizational structure, team performance,
Putting it all to bed
techniques of project management, and benefits of the
Disbanding the team
project to the organization and the customer. Two
3. Understand key reasons for early termination of challenges are involved in developing effective final
projects. A project may become a candidate for reports: first, being willing to take a candid and honest
early termination for a number of reasons, including look at how the project progressed, highlighting both
the recognition of significant changes in the follow- its strengths and weaknesses; and second, developing
ing critical factors: (a) static factors, (b) task-team fac- reports in such a manner that they contain a combination
tors, (c) sponsorship, (d) economics, (e) environment, of descriptive analysis and prescriptive material for
and (f) user requirements. Research has determined a future projects. The goal in requiring a final project
number of early warning signs of pending problems report is to lay the groundwork for successful future
with projects that can signal fatal errors or irrecover- projects. Although the final report is used to reflect on
able problems. This chapter also examined some of what went right and wrong with the current project,
the decision rules that allow us to make reasonable it is fundamentally a forward-looking document used
choices about whether to cancel an ongoing project. to improve organizational processes in order to make
Specifically, we may choose to terminate ongoing proj- future projects more effective, project activities more
ects when: productive, and project personnel more knowledgeable.

Key Terms
Arbitration (p. 487) Early termination (p. 480) Termination by addition Termination by starvation
Build, Operate, Transfer Ex-gratia claims (p. 487) (p. 470) (p. 470)
(BOT) (p. 473) Lessons learned (p. 474) Termination by extinction Unnatural termination
Build, Own, Operate, Natural termination (p. 469) (p. 470) (p. 469)
Transfer (BOOT) (p. 473) Private Finance Initiatives Termination by integration
Default claims (p. 487) (PFis) (p. 472) (p. 470)
Disputes (p. 487) Project termination (p. 469)

Discussion Questions
1. Why is the decision to terminate a project often as much an 7. Comment on the following statement: "In deciding on whether
emotional one as an intellectual one? or not to kill a project, it is critical to continually monitor the
2. Comment on the different methods for project termination. environment for signs it may no longer be viable."
How have you seen an example of one of these methods, 8. Refer to the Project Management Research in Brief box in
through either your school or work experience? this chapter. In your opinion, why is it so difficult to bring
3. Why do so many projects end up terminated as a result of IT projects to successful completion? In other words, iden-
termination through starvation? Discuss the role of ego, power, tify some reasons why the cancellation rate for IT projects
and politics in this form of project termination. is 40%.
4. Refer back to Chapter 2. How does the concept of escalation of 9. Imagine you are a team member on a project that has missed
commitment factor into decisions of whether to terminate projects? deadlines, has not produced the hoped-for technological results,
5. Of the seven elements in project closeout management, which and has been a source of problems between your team and the
do you view as being most important? Why? customer. You have just been informed that the project is being
6. Why do lessons learned programs often fail to capture mean- canceled. In what ways is this good news? How would you view it
ingful information that could help guide future projects? as bad news?
 Case Study 14.2 491

Case Study 14.1

Project Libra: To Terminate or Not to Terminate
The headline in an issue of ITWeek e-magazine confirmed of canceled or overbudget government IT projects had
what many people had known for a long time about the topped £1.Sbn in the past six years. The latest Computing
status of a high-profile IT project initiated by the British survey into government IT spending showed a 50%
government: "Government Refuses to Bail Out Libra- increase in the amount of money squandered on misman-
Troubled Project Still Delayed." After significant delays of aged projects since its previous study nearly two years
more than two years, the UK government finally deter- before that.
mined that it would spend no more money on the trou- Treasury minister Paul Boateng recently admitted
bled Libra project at the Lord Chancellor's department. that his department does not know how much has been
Libra combined office infrastructure and a new wasted since the Labour government came to power.
casework system linking magistrates' courts, but the soft- High-profile disasters taken into account in Computing's
ware application was not delivered in July 2001 as planned research include the £698m wasted on the canceled
and continued to be delayed. A spokesperson for the Lord Pathway project to develop smart cards for benefits pay-
Chancellor's office claimed that the project was in place ments, and the £260m overspent on the magistrates'
at 70% of the magistrates' courts. However, he explained courts Libra system identified by the National Audit
that the contract with Fujitsu Services (formerly ICL) was Office in 2008.
currently under renegotiation and that "it is not yet pos- "In business no group of shareholders would stom-
sible to indicate the outcome." ach the losses, overruns, and even pretty poor software that
The department said that it had so far paid £33m successive governments have made," said Derek Wyatt,
to Fujitsu Services. The cost of the contract had already a Member of Parliament. "The opportunity cost value is
increased from £183m to £319m due to additional work hundreds of small new hospitals and schools. Perhaps civil
that the Lord Chancellor's department requested. Fujitsu servants who fail frequently should lose their jobs." 26
had been under heavy pressure from both the government
Questions
and opposition parties, but by then it had been recognized
that the project's final costs and completion date could 1. Do a Google search for "UK's Project Libra" to see the
not be reasonably determined, suggesting that Project string of news stories related to Project Libra. Identify
Libra could continue well into the future. some of the sources of the problems the project faced.
Unfortunately, Libra continues a long tradition 2. If you were the one to decide whether to terminate
of poorly managed government IT projects within the this project, what would your decision have been?
United Kingdom. Recently it was estimated that the cost Justify your position.

Case Study 14.2

The Project That Wouldn't Die
Ben walked into his boss's office Tuesday morning in a appeared to be a complete waste of time. And now here
foul mood. Without wasting any time on pleasantries, Ben was, assigned to join the project!
he confronted Alice. "How on earth did I get roped into Ben continued, "Alice, you know this assignment is
working on the Regency Project?" he asked, holding the misusing my abilities. Nothing has come from Regency; in
memo that announced his immediate transfer. Alice had fact, I'd love to know how top management, who are usu-
been expecting such a reaction and sat back a moment to ally so cost conscious, have allowed this project to con-
collect her thoughts on how to proceed. tinue. I mean, the thing just won't die!"
The Regency Project was a minor legend around Alice laughed. "Ben, the answer to your question
the office. Begun as an internal audit of business practices can be easily found. Have you bothered taking a look at
20 months earlier, the project never seemed to get any- any of the early work coming out of Regency during its
thing accomplished, was not taken seriously within the first three months?" When Ben shook his head, she con-
company, and had yet to make one concrete proposal for tinued, "The early Statement of Work and other scope
improving working practices. In fact, as far as Ben and development was overseen by Harry Shapiro. He was the
many other members of the company were concerned, it original project manager for Regency."
(continued)
500 Appendix B • Tutorial for MS Project 2010

3. ASSIGN AND LEVEL RESOURCES

We then can add resources to the project based on the information given below:

Activity Resource Responsible

A Todd
B Rose
c Rose
D Mike
E Josh
F Todd
G Mary
H Todd

Click on the "Resource" tab and then click on "Assign Resources." This will open up a new window for enter-
ing all the resource names for the project. Once the name "Todd" has been assigned to Activity A, the screen
should look like Figure A.7.

A. Contract Approv•I Sdays- 1·

8. Site Survey Sd•ys II
C. Permit Appli~tfon 4 days II
o. GradinJ Sdays 11
E. sewer Lines 7 days v
F. Bue Pavlnc 3days v
G. City Approv.il 6days
H. Final Paving Sdays

Auign Rnources

NrotastsdKttd
(±) Rt$N"«:JistOPOotw
Rplu'c:a from ProjKt2

a..,,

~:~,r-----,~-~-+- ..
_.-+:""'-·--~ll .:·
~ ~--·-+·---+--+---- ~
----
FIGURE A .7 Assigning Resources

Task Name ... ,:>uration ,.. Nov7 "10 Nov21 '10 HOY 28. '10 0.C 5 '10 O.C 12 '10 DK 19 '10
s M w F S M W F 5 T T S M W F S T T S M W F
A. Contract Approval 5 days I
B. Sit e Survey 5 days II
C. Permit Application 4 days V
D. Grading 5 days II
E. Sewer Lines 7 days v
F. Base Paving 3 days v
G. City Approval 6days
H. Final Paving 8 days

FIGURE A.8 Resource Assignment Completed

Continue assigning resources to the project activities from the people identified in the "Assign
Resources" box. The completed resource assignment will look like Figure A.8.

4. SUPPOSE ROSE IS RESPONSIBLE FOR ACTIVITIES B AND C.

ARE THERE ANY RESOURCE CONFLICTS? HOW DO WE KNOW?
Will assigning Rose to Activities B and C cause a resource conflict? To determine this information, take a
look at the Gantt chart constructed in Figure A.9 and note the human figures in the information column at
the left. This is a warning of resource conflict. Just by looking at the Gantt chart, you can see that assigning
 Exercise A: Constructing the Network: Site Preparation Project 501

0 Task Name ... Nov7 '10 Nov21 '1

s M w F s M w
1 A. Contract Approval Sdays
2 i B. Site Survey
Sdays'~
i
- 3
4
C. Pennit Application
D. Grading
4days
5days
5 E. Sewer Lines 7days
6 F. Base Paving 3days
7 G. City Approval 6days
8 H. Final Paving Sdays

FIGURE A.9 Resource Conflict Warning

Rose to Activities B and C will be a problem because both activities are scheduled to begin at the same time.
How do you resolve this conflict?
One option is to click on the "Resource" tab and highlight the two activities that are in conflict
(Band C) . Then, click the "Level Resource" option and a dialogue box will appear in which you can highlight
the name of the resource conflict (Rose). Figure A.10 shows the screen with Rose's name highlighted. Click
"Level Now" in the box.

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FIGURE A.10 Leveling Resources

Notice that the project schedule (Gantt chart shown in Figure A.11) has been modified as a result
of the decision to level the resource. As the figure shows, the new precedence ordering for the activities
moves Activity C into a sequential relationship with Activity D. The important question is, "What
happens to the project's duration as a result ofleveling the resources?" Figure A.11 shows that it does not
change the expected completion date for this project because there were several days of slack built into
Activity C. In this example, delaying the start of Activity C does not affect the project's critical path, as
Figure A.12 shows.