Chapter 5 discusses several estimating methods.  Read the chapter and discuss which method do you feel is most effective from a project management perspective.  Then select and

36 PM NETWORK AUGUST 2019 PMI.ORG

BIG Ambition

When funds are tighter, teams must prioritize tasks and objectives.

BY HAYLEY GRGURICH | ILLUSTRATION BY PETE RYAN

SMALL Budget

PMN0819 c-First Features.indd 36 7/15/19 5:12 PM

AUGUST 2019 PM NETWORK 37

BIG Ambition

PMN0819 c-First Features.indd 37 7/15/19 12:11 PM

38 PM NETWORK AUGUST 2019 PMI.ORG

Economists and C-suite executives can’t come to a consensus. It’s unanimous, though, that optimism has waned and executives are tempering their expectations: CEO confidence in one- and three- year revenue growth at their organizations has either plateaued or fallen in all 90 regions in which PwC conducted its 2019 annual CEO survey.

For companies that want to remain competitive, that flatlined confidence need not send portfolios grinding to a halt—but it may well impact project managers and the budgets behind the initiatives they manage.

A 2018 Bain & Co. analysis found that companies that reacted more offensively across their portfo- lios—launching new R&D projects, greenlighting change initiatives, expanding into new arenas— emerged far stronger from a recession than those that shelved all but essential operations and waited for the recession to pass. And a 2017 study from the U.S. National Bureau of Economic Research shows that a recession can actually accelerate technologi- cal change at organizations. That might be, in part, because project leaders are taking advantage of lower opportunity costs during economic dips to greenlight IT initiatives.

Retail giant Target is a case in point: During the 2000 recession and its lingering fallout, the company completed projects to build nearly 250 new stores, launched initiatives to expand into new

Is a global recession looming?

“Understanding how to do more with less … is a real challenge. But it’s not impossible.” —Sarah Devine, Few, New York, New York, USA

PMN0819 c-First Features.indd 38 7/15/19 12:11 PM

AUGUST 2019 PM NETWORK 39

fewer team hours—it’s imperative to take the time upfront to thoroughly analyze the project charter, says Malong Dong, PMP, portfolio manager, Insur- ance Australia Group, Sydney, Australia.

“Before rushing into project execution, analyze the scope, time frame and resourcing,” he says. “Spending that time in the beginning helps priori- tize project deliverables and align project objec- tives with the sponsor so you can better plan how to overcome the challenge of budget constraint.”

Pulling lessons learned from similarly scoped ini- tiatives in the organization’s past can shed light on how deeply the budget has been cut or constricted. Does the tighter budget correlate with a scaled-back scope? Has the team been resourced dramatically differently? Are there certain elements, such as external vendors or a lengthier schedule, that might also come into play?

merchandise segments and invested in supply chain efficiencies. Over the course of the recession, those projects and programs helped elevate sales by 40 percent and profits by 50 percent, according to a Harvard Business Review analysis.

But project managers tasked with delivering suc- cessful initiatives during lean economic times could find that they’re managing smaller budgets than similar projects might have commanded in the past. “Understanding how to do more with less—and make a tighter-than-usual budget work—is a real challenge,” says Sarah Devine, director of projects for the tech agency Few, New York, New York, USA. “But it’s not impossible.”

START SLOW While it may feel like the clock is ticking to get started—especially if that leaner budget is based on

Over the course of the recession, Target’s projects and programs helped elevate sales by 40% and profits by 50%. Source: Harvard Business Review analysis

PH O

TO B

Y M

AR IO

T AM

A/ G

ET TY

IM AG

ES

PMN0819 c-First Features.indd 39 7/15/19 12:11 PM

40 PM NETWORK AUGUST 2019 PMI.ORG

if they had jumped directly into execution with a vague plan. And it freed up more of the tight budget for tailoring the app’s functionality, positioning the team to not only meet but exceed the client’s origi- nal business goals.

TEAM TRANSPARENCY Sharing exact budget details with every team mem- ber might not be necessary—or even appropriate. But it’s worthwhile to signal that an initiative with greater budget constraints isn’t going to be business as usual, says Ms. Devine, so the team understands that meeting the intended targets might require some creative planning, extra hours or tweaks to the typical processes.

Be prepared, too, that a smaller budget can some- times trigger disappointment among team members, says Franciscus Suryana, PMP, an IT project man- ager for engineering firm Aurecon, Melbourne, Aus- tralia. “They may not be able to design and build the solutions they want,” he says. “But there’s an oppor- tunity for the project manager to position the smaller

An arbitrarily condensed project budget com- pared with standard projects can signal disaster down the road. But a frank conversation with the sponsor should reveal the reasoning and expecta- tions behind the budget, says Mr. Dong.

That was the case at Few, where Ms. Devine man- aged a custom-built app project for a client with an unconventionally small project budget. Rather than spur the team directly into the app’s development to save money, she made sure the planning phase wasn’t given short shrift.

“The team had two months of exploration,” says Ms. Devine. “The primary stakeholder on the client side came in for meetings with our head designer to talk about functionality, map out wireframes and really sketch out exactly what they wanted.”

Investing in that level of planning quickly yielded cost savings when the team flagged existing func- tionality from a third-party service that could be leveraged as the foundation for the custom app. The team could then skip directly to the customization phase, shaving more time off the total schedule than

“There’s an opportunity

for the project manager to position the

smaller budget as a potential

gold mine of creativity for

the team.” —Franciscus Suryana, PMP,

Aurecon, Melbourne, Australia

40 PM NETWORK AUGUST 2019 PMI.ORG

PMN0819 c-First Features.indd 40 7/15/19 12:11 PM

AUGUST 2019 PM NETWORK 41

budget as a potential gold mine of creativity for the team.” Can the team deliver the usual solutions in a new way? Are there new delivery approaches that might prove more cost-effective? “Let them know this can be their chance to trigger innovative think- ing instead of delivering the same old solutions in the same old ways,” he says.

To sustain that early team morale, Mr. Suryana makes it a point to celebrate project milestones and commend individual contributions through the project’s execution phase. Even small birthday celebrations can help fuel engagement—and team momentum. “It shows that the project manager cares about the team, regardless of project budget,” he says.

PRIORITIZE RISK Overruns can be lethal to a smaller budget, says Thais Villela, senior tech project manager, interac- tive agency BFerraz, São Paulo, Brazil. And that’s particularly true if the portfolio also has lower con- tingency funds than usual to cushion any overage or realized risk.

Sponsor involvement is crucial on any project, but tighter budgets mean being especially mindful not to gloss over cost estimates and risk registers, says Mr. Dong. How early does the sponsor want to be alerted to cost overruns? What communication style will best engage him or her throughout the initiative? Are there any risks that, if realized, should trigger an automatic escalation? To avoid surprises and maintain alignment, Ms. Villela recommends frequent touch points with the sponsor. “Especially on tight-budget projects, touch base with updates at every possible step,” she says.

Those regular updates should also span risks, says Mr. Dong. “When working with a tighter budget, project managers have to pay extra attention to tracking project spend and forecasting in order to reduce the risk of budget overrun. But any con- versation about overruns should include overrun mitigation plans,” he says. In his experience, a one- page summary of the project’s current and forecast financials is a worthwhile tool to incorporate into any meeting with the project sponsor. PM

Thais Villela, senior tech project manager, BFerraz, São Paulo, Brazil, shares insights on how to adjust to a tighter budget when project work is already underway.

Review what the team has already done. That’s the only way to get a firm handle on what can and can’t be reduced to still deliver the mini- mum viable product, she says.

Lay out the scenarios. When meeting with the project sponsor, come prepared with a few possible scenarios. That makes it easier to concretely analyze the best path forward.

Focus on alignment. Remember: Scope, budget and schedule don’t matter much if the completed project isn’t aligned with the strategic goals of the organization or the client. Sometimes, that means the more stra- tegic move in the face of deep budget cuts is to shelve the initia- tive rather than plow forward. But if the adjusted project plan can proceed, priori- tize work-in-progress check-ins, she says, to ensure alignment every step of the way.

Funding Interrupted

“Project managers have to pay extra attention to tracking project spend and forecasting.” —Malong Dong, PMP, Insurance Australia Group, Sydney, Australia

1

2 3

PMN0819 c-First Features.indd 41 7/15/19 12:11 PM

PROJECT MANAGEMENT

THE MANAGERIAL PROCESS 7E

ERIK W. LARSON CLIFFORD F. GRAY

Connect Insight® Connect Insight is Connect’s new one-of-a-kind visual analytics dashboard—now available for both instructors and students—that provides at-a-glance information regarding student performance, which is immediately actionable. By presenting assignment, assessment, and topical performance results together with a time metric that is easily visible for aggregate or individual results, Connect Insight gives the user the ability to take a just-in-time approach to teaching and learning, which was never before available. Connect Insight presents data that empowers students and helps instructors improve class performance in a way that is efficient and effective.

McGraw-Hill Connect® Learn Without Limits Connect is a teaching and learning platform that is proven to deliver better results for students and instructors.

Connect empowers students by continually adapting to deliver precisely what they need, when they need it, and how they need it, so your class time is more engaging and effective.

Mobile

73% of instructors who use Connect require it; instructor satisfaction increases

by 28% when Connect is required.

Students can view their results for any

Connect course.

Analytics

Connect’s new, intuitive mobile interface gives students and instructors flexible and convenient, anytime–anywhere access to all components of the Connect platform.

Required=Results

®

©Getty Images/iStockphoto

Using Connect improves retention rates by 19.8%, passing rates by 12.7%, and exam scores by 9.1%.

SmartBook® Proven to help students improve grades and study more efficiently, SmartBook contains the same content within the print book, but actively tailors that content to the needs of the individual. SmartBook’s adaptive technology provides precise, personalized instruction on what the student should do next, guiding the student to master and remember key concepts, targeting gaps in knowledge and offering customized feedback, and driving the student toward comprehension and retention of the subject matter. Available on tablets, SmartBook puts learning at the student’s fingertips—anywhere, anytime.

Adaptive

Over 8 billion questions have been answered, making McGraw-Hill

Education products more intelligent, reliable, and precise.

THE ADAPTIVE READING EXPERIENCE DESIGNED TO TRANSFORM THE WAY STUDENTS READ

More students earn A’s and B’s when they use McGraw-Hill Education Adaptive products.

www.mheducation.com

The McGraw-Hill Series Operations and Decision Sciences

OPERATIONS MANAGEMENT Beckman and Rosenfield, Operations, Strategy: Competing in the 21st Century, First Edition

Benton, Purchasing and Supply Chain Management, Second Edition

Bowersox, Closs, Cooper, and Bowersox, Supply Chain Logistics Management, Fourth Edition

Brown and Hyer, Managing Projects: A Team-Based Approach, First Edition

Burt, Petcavage, and Pinkerton, Supply Management, Eighth Edition

Cachon and Terwiesch, Operations Management First Edition

Cachon and Terwiesch, Matching Supply with Demand: An Introduction to Operations Management, Third Edition

Cooper and Schindler, Business Research Methods, Twelfth Edition

Finch, Interactive Models for Operations and Supply Chain Management, First Edition

Fitzsimmons, Fitzsimmons, and Bordoloi, Service Management: Operations, Strategy, Information Technology, Eighth Edition

Gehrlein, Operations Management Cases, First Edition

Harrison and Samson, Technology Management, First Edition

Hayen, SAP R/3 Enterprise Software: An Introduction, First Edition

Hill, Manufacturing Strategy: Text & Cases, Third Edition

Hopp, Supply Chain Science, First Edition

Hopp and Spearman, Factory Physics, Third Edition

Jacobs, Berry, Whybark, and Vollmann, Manufacturing Planning & Control for Supply Chain Management, Sixth Edition

Jacobs and Chase, Operations and Supply Management: The Core, Fourth Edition

Jacobs and Chase, Operations and Supply Management, Fifteenth Edition

Jacobs and Whybark, Why ERP? First Edition

Larson and Gray, Project Management: The Managerial Process, Seventh Edition

Leenders, Johnson, and Flynn, Purchasing and Supply Management, Fourteenth Edition

Nahmias, Production and Operations Analysis, Sixth Edition

Olson, Introduction to Information Systems Project Management, Second Edition

Schroeder, Goldstein, Rungtusanatham, Operations Management: Contemporary Concepts and Cases, Seventh Edition

Seppanen, Kumar, and Chandra, Process Analysis and Improvement, First Edition

Simchi-Levi, Kaminsky, and Simchi-Levi, Designing and Managing the Supply Chain: Concepts, Strategies, Case Studies, Third Edition

Sterman, Business Dynamics: Systems Thinking and Modeling for Complex World, First Edition

Stevenson, Operations Management, Thirteenth Edition

Swink, Melnyk, Cooper, and Hartley, Managing Operations Across the Supply Chain, Third Edition

Thomke, Managing Product and Service Development: Text and Cases, First Edition

Ulrich and Eppinger, Product Design and Development, Fourth Edition

Zipkin, Foundations of Inventory Management, First Edition

QUANTITATIVE METHODS AND MANAGEMENT SCIENCE Hillier and Hillier, Introduction to Management Science: A Modeling and Case Studies Approach with Spreadsheets, Fifth Edition

Stevenson and Ozgur, Introduction to Management Science with Spreadsheets, First Edition

Project Management:

The Managerial Process Seventh Edition

Erik W. Larson

Clifford F. Gray Oregon State University

PROJECT MANAGEMENT: THE MANAGERIAL PROCESS, SEVENTH EDITION

Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2018 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2014 and 2011. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning.

Some ancillaries, including electronic and print components, may not be available to customers outside the United States.

This book is printed on acid-free paper.

1 2 3 4 5 6 7 8 9 LWI 21 20 19 18 17 

ISBN 978-1-259-66609-4 MHID 1-259-66609-3

Chief Product Officer, SVP Products & Markets: G. Scott Virkler Vice President, General Manager, Products & Markets: Marty Lange Managing Director: James Heine Brand Manager: Dolly Womack Product Developer: Christina Holt Marketing Manager: Britney Hermsen Director, Content Design & Delivery: Linda Avenarius Program Manager: Mark Christianson Content Project Managers: Melissa M. Leick, Bruce Gin, Karen Jozefowicz Buyer: Jennifer Pickel Design: Egzon Shaqiri Content Licensing Specialists: Melissa Homer, Beth Thole Cover Design: Jessica Cuevas Cover Image: © Getty Images/Georgijevic Compositor: Aptara®, Inc. Printer: LSC Communications

All credits appearing on page or at the end of the book are considered to be an extension of the copyright page.

Library of Congress Cataloging-in-Publication Data

Names: Gray, Clifford F., author. | Larson, Erik W., 1952 author. Title: Project management : the managerial process / Erik W. Larson, Oregon State University, Clifford F. Gray, Oregon State University. Description: Seventh edition. | New York, NY : McGraw-Hill Education, [2018] | Clifford F. Gray is the first named author on the earlier editions. Identifiers: LCCN 2016040029 | ISBN 9781259666094 | ISBN 1259666093 (alk. paper) Subjects: LCSH: Project management. | Time management. | Risk management. Classification: LCC HD69.P75 G72 2018 | DDC 658.4/04—dc23 LC record available at https://lccn.loc.gov/

2016040029

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites.

mheducation.com/highered

Erik W. Larson ERIK W. LARSON is professor of project management at the College of Business, Oregon State University. He teaches executive, graduate, and undergraduate courses on project management and leadership. His research and consulting activities focus on project management. He has published numerous articles on matrix management, product development, and project partnering. He has been honored with teaching awards from both the Oregon State University MBA program and the University of Oregon Executive MBA program. He has been a member of the Portland, Oregon, chapter of the Project Management Institute since 1984. In 1995 he worked as a Ful- bright scholar with faculty at the Krakow Academy of Economics on modernizing Polish business education. He was a visiting professor at Chulalongkorn University in Bangkok, Thailand, and at Baden-Wuerttemberg Cooperative State University in Bad Mergentheim, Germany. He received a B.A. in psychology from Claremont McKenna College and a Ph.D. in management from State University of New York at Buffalo. He is a certified project management professional (PMP) and Scrum Master.

Clifford F. Gray CLIFFORD F. GRAY is professor emeritus of management at the College of Busi- ness, Oregon State University. He has personally taught more than 100 executive development seminars and workshops. Cliff has been a member of the Project Man- agement Institute since 1976 and was one of the founders of the Portland, Oregon, chapter. He was a visiting professor at Kasetsart University in Bangkok, Thailand, in 2005. He was the president of Project Management International, Inc. (a training and consulting firm specializing in project management) 1977–2005. He received his B.A. in economics and management from Millikin University, M.B.A. from Indiana Univer- sity, and doctorate in operations management from the College of Business, University of Oregon. He is certified Scrum Master.

About the Authors

vii

“Man’s mind, once stretched by a new idea, never regains its original dimensions.”

Oliver Wendell Holmes, Jr.

To my family, who have always encircled me with love and encouragement—my parents (Samuel and Charlotte), my wife (Mary), my sons and their wives (Kevin and Dawn, Robert and Sally) and their children (Ryan, Carly, Connor and Lauren).

C.F.G.

“We must not cease from exploration and the end of all exploring will be to arrive where we began and to know the place for the first time.”

T. S. Eliot

To Ann, whose love and support have brought out the best in me. To our girls Mary, Rachel, and Tor-Tor for the joy and pride they give me. And to our grandkids, Mr. B, Livvy, and Xmo, whose future depends upon effective project management. Finally, to my muse, Neil—Walk on!

E.W.L

viii

Our motivation in writing this text continues to be to provide a realistic, socio-technical view of project management. In the past, textbooks on project management focused almost exclusively on the tools and processes used to manage projects and not the human dimension. This baffled us since people not tools complete projects! While we firmly believe that mastering tools and processes is essential to successful project management, we also believe that the effectiveness of these tools and methods is shaped and determined by the prevailing culture of the organization and interpersonal dynamics of the people involved. Thus, we try to provide a holistic view that focuses on both of these dimensions and how they interact to determine the fate of projects. The role of projects in organizations is receiving increasing attention. Projects are the major tool for implementing and achieving the strategic goals of the organization. In the face of intense, worldwide competition, many organizations have reorganized around a philosophy of innovation, renewal, and organizational learning to survive. This philosophy suggests an organization that is flexible and project driven. Project management has developed to the point where it is a professional discipline having its own body of knowledge and skills. Today it is nearly impossible to imagine anyone at any level in the organization who would not benefit from some degree of expertise in the process of managing projects.

Audience

This text is written for a wide audience. It covers concepts and skills that are used by managers to propose, plan, secure resources, budget, and lead project teams to suc- cessful completions of their projects. The text should prove useful to students and prospective project managers in helping them understand why organizations have developed a formal project management process to gain a competitive advantage. Readers will find the concepts and techniques discussed in enough detail to be imme- diately useful in new-project situations. Practicing project managers will find the text to be a valuable guide and reference when dealing with typical problems that arise in the course of a project. Managers will also find the text useful in understanding the role of projects in the missions of their organizations. Analysts will find the text useful in helping to explain the data needed for project implementation as well as the opera- tions of inherited or purchased software. Members of the Project Management Insti- tute will find the text is well structured to meet the needs of those wishing to prepare for PMP (Project Management Professional) or CAPM (Certified Associate in Project Management) certification exams. The text has in-depth coverage of the most critical topics found in PMI’s Project Management Body of Knowledge (PMBOK). People at all levels in the organization assigned to work on projects will find the text useful not only in providing them with a rationale for the use of project management processes but also because of the insights they will gain on how to enhance their contributions to project success. Our emphasis is not only on how the management process works, but more impor- tantly, on why it works. The concepts, principles, and techniques are universally

Preface

ix

x Preface

applicable. That is, the text does not specialize by industry type or project scope. Instead, the text is written for the individual who will be required to manage a variety of projects in a variety of different organizational settings. In the case of some small projects, a few of the steps of the techniques can be omitted, but the conceptual frame- work applies to all organizations in which projects are important to survival. The approach can be used in pure project organizations such as construction, research orga- nizations, and engineering consultancy firms. At the same time, this approach will benefit organizations that carry out many small projects while the daily effort of deliv- ering products or services continues.

Content

In this and other editions we continue to try to resist the forces that engender scope creep and focus only on essential tools and concepts that are being used in the real world. We have been guided by feedback from practitioners, teachers, and students. Some changes are minor and incremental, designed to clarify and reduce confusion. Other changes are significant. They represent new developments in the field or better ways of teaching project management principles. Below are major changes to the seventh edition. ∙ Learning objectives have been established for each chapter and the corresponding

segment has been marked in the text. ∙ Chapter 16 Oversight has been eliminated and critical information on project matu-

rity models is now part of Chapter 14. ∙ Chapter 18 Project Management Career Paths has been eliminated and essential

information from this chapter is now in Chapter 1. ∙ A new set of network exercises have been developed for Chapter 6. ∙ A new set of crashing exercises have been developed for Chapter 9 which introduce

crashing concepts in a developmental way. ∙ The Chapter 2 Appendix on Request for Proposal is now part of Chapter 12. ∙ Terms and concepts have been updated to be consistent with the sixth edition of the

Project Management Body of Knowledge (2015). ∙ New student exercises and cases have been added to chapters. ∙ The Snapshot from Practice boxes feature a number of new examples of project

management in action as well as new Research Highlights that continue to promote practical application of project management.

∙ The Instructor’s Manual contains a listing of current YouTube videos that corre- spond to key concepts and Snapshots from Practice.

Overall the text addresses the major questions and challenges the authors have encountered over their 60 combined years of teaching project management and con- sulting with practicing project managers in domestic and foreign environments. These questions include:  What is the strategic role of projects in contemporary organiza- tions? How are projects prioritized? What organizational and managerial styles will improve chances of project success? How do project managers orchestrate the complex network of relationships involving vendors, subcontractors, project team members, senior management, functional managers, and customers that affect project success? What factors contribute to the development of a high-performance project team? What project management system can be set up to gain some